MASTER 
NEGATIVE 

NO.  95-82346- 2 


COPYRIGHT  STATEMENT 


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Author: 


U.S.  Federal  Trade 
Commission 


I  1^1  ■ 

Maximum  profit  limitation 

meat-pacl<ing  industry 


Place: 


Wasfiington,  D.C. 

Date: 

1919 


COLUMBIA  UNIVERSITY  LIBRARIES 
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MASTER  NEQATIYE  # 


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U.S.  Federal  trade  cammiiBiOfk 

...  Maj^imutu  profit  limitation  on  meat-packing  industry./ 
Letter  from  Federal  trade  tommission  in  response  to  Senate^ 

resolution  of  September  3,  1919,  submitting  a  report  of  the 
results  of  a  special  investigation  of  the  reasonableness  of  the 
maximum  profit  limitations  fixed  on  the  meat-packing  indus- 
try by  the  Food  administration  ...  Washington,  Govt,  print, 
off.,  i919. 

179  p.  incl.  tables.  28*.    (06th  Cong.,  1st  sess.   Senate.  Doc.  110) 

Referred  to  the  Committee  on  agriculture  and  forestry  and  ordered 
printed  September  25,  1919.  ' 

1.  Meat  industry  and  trade— U.  S.  i.  U.  S.  Food  administration 
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MAXmUM  PBOFIT  LIl^'ITATION  ON  MEAT- 
PACKING INDUSTRY 


U.S.  Congress.    Senate.    Committee  on  A 

culture  and  Forestry 


tfidntitlria  (Bmtiem'tp 

LIBRARY 


School  of  Business 


P 


66th  Congress \  csirwATV  /Document 

mSeuum    f  SENATE  |  j^^^  ^^^j 


MAXIMUM  PROFIT  LIMITATION  ON 
I    MEAT-PACKING  INDUSTRY 


LETTER  FROM 
FEDERAL  TRADE  COMMISSION 

IN  RESPONSE  TO 

S£NATE  RESOLUTION  OF  SEPTEMBER  3,  1919 

SUBMITTING 

A  REPORT  OF  THE!  RESULTS  OF  A  SPEOAL 
04VESTiGATION  OF  THE  REASONABLEfCSS  OF 
im  MAXIMUM  PROFIT  LIMITATIONS  FIXED 

ON  THE  MEAT-PACKING  INDUSTRY  BY  THE 
FOOD  ADMINISTRATION 


SePTEMBEIR  25,  1 91 9. — Referrecl  to  the  Committee  on  Agriculture  and  Forestry 

and  ordered  to  be  printed 


WASiflNcrroN 

GOVERNMENT  PRWTING  OFFICE 
1919 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY, 


To  THE  PfiEsmisNT  OF  THE  Ukitm)  States  Sen Aiiii: 

Sir:  The  Federal  Trade  Commission  has  the  honor  to  make  here- 
with report  to  the  Senate  in  the  matter  of  Senate  Besolution  177 
(Mr.  Ncuris) : 

In  the  Senate  of  the  United  States. 

August  2S  {calendar  day  SepU  5),  1919. 

Resolved,  That  the  Federal  Trade  Ck>mmis8ioii  be,  and  It  is  hereby,  instructed 

to  inform  the  Senate  whether  said  Federal  Trade  Commission,  prior  to  July  1, 
1918,  made  a  special  investip:ation  of  the  reasonableness  of  the  maximum  profit 
limitations  fixed  on  the  meat-packing  industry  by  the  Food  Administration; 
and  if  sach  InTestigation  was  made,  that  the  Federal  Trade  OommiaalOB  be  in- 
structed to  report  to  the  Senate  its  conclusions  and  findings  based  thereon. 

The  Federal  Trade  Commissi(m,  by  direction  of  the  Presid^t,  did 
make  such  examination,  and  on  Jmie  28,  1918,  made  report  to  the 
President  of  the  United  States. 

On  July  8,  1918,  the  Hon.  Herbert  Hoover,  United  States  Food 
Administrator,  commented  upon  the  report  made  by  the  Federal  Trade 
Ck}mmission  in  a  letter  addressed  to  the  President,  together  with  a 
covering  letter,  and  on  July  20, 1918,  the  Federal  Trade  Commission 
prepar^  a  memorandum  on  the  comments  of  Mr.  Hoover.  This  lat- 
ter, prepared  in  the  form  of  a  proposed  letter  to  the  President  of  the 
United  States,  was  not  then  sent  to  the  President  at  that  time,  but  its 
form  was  confirmed  by  the  commission  and  represented  the  conunis-  * 
sion's  opinion  at  that  time.  The  letter  was  not  sent  to  the  President 
at  that  time  for  the  reason  that  its  contents  were  orally  discussed 
and  the  matter  seemed  to  be  closed. 

At  the  suggestion  of  representatives  of  the  Food  Administration, 
the  commission  is  including  in  this  return  to  the  Senate  Mr.  Hoover's 
letters  of  July  8,  and  in  order  that  the  file  may  be  complete  the  com- 
mission has  deemed  it  proper  to  include  its  memorandum  of  July  20, 
1918. 

There  is  also  included  three  exhibits,  being  reports  independently 
made  by  (1)  the  accountants  of  the  Federal  Trade  Commission ;  (2) 
bj  the  pubUc  accounting  firm  of  Perley  Morse  &  Co.,  New  York,  cer- 
tified public  accountants,  and  (3)  a  report  in  which  both  the  public 
accounting  firm,  the  Fedwtl  Trade  CJommission's  accountants,  and 
Mr.  Walter  Y.  Durand,  a  member  of  the  Federal  Trade  CcMnmiasion's 
economic  staff,  unite.  These  three  exhibits  contain  the  data  upon 
which  the  report  to  the  President  of  June  28  was  ba4sed. 

The  report  of  the  Federal  Trade  Commission  to  the  President,  the 
letters  of  comment  by  Mr.  Hoover,  and  the  commission's  memorandum 
follow,  and  to  this  report  are  annexed  the  tlwee  exhibits  above  identi- 

8 


4       MAJUMUM  PSOFIT  LIMITATION  ON  M£AT-PACKINQ  INDUSTBT. 

fied.  The  report  of  the  Federal  Trade  Commissioii  to  the  President 
is  as  follows: 

Fedesal  Tbade  Commission, 

Washington,  J«ffi«  98,  1918. 

Sib:  On  May  27,  1918,  the  Prwrtdent's  committee  on  meat  policy  in  its  report 
to  you  suggested  that  the  Federal  Trade  Commission  report  to  you  before 
July  1  on  the  reasonableness  of  the  present  profit  regulation  of  meat-packing 
companies  as  imposed  by  the  Food  Administration.   

Immediately  upoii  your  direction  that  this  be  done,  ttie  eonmlssloD  andertooK 
the  task,  and  finds:  ^  ^ 

I.  Tliat  the  maximum  profits  for  the  five  largest  packers  under  the  Food 
Administration  regulations  are  unreasonably  high.  These  rates  of  Profit  are 
estimated  to  be  ftrom  two  and  one  quarter  to  three  times  as  great  as  those 
earned  in  the  prewar  years  of  1912, 1913,  and  1914. 

II.  That  the  plan  of  regulation  makes  impossible  adequate  certification;  so 
that,  to  safeguard  the  public  interest,  the  plan  should  be  changed. 

Supplementing  these  conclasloiis,  the  commission  makes  tkm  foHowliig  spe- 
dflc  recommendations: 

(1)  That  the  present  segregation  of  the  business  of  the  packers  into  classes 
be  discontinued,  and,  for  the  current  year  at  least,  the  regulation  apply  a  single 
rate  to  the  licensee's  entire  business,  Ittdndlng  foreign  business  and  domestic 
sabsldiaries  and  affiliations,  without  segregation  or  exemption  of  any  kind. 

(2)  That  net  worth  (actual  invested  capital  represented  by  stock  issued 
and  surplus)  as  of  November  1,  1917,  be  the  basis  upon  which  the  allowed  rate 
of  profit  be  computed  for  all  packers,  large  and  small,  and  that  gross  sales  as 
a  basis,  as  well  as  "  net  investment "  which  now  applies  only  to  the  five  chief 
packers,  be  discontinued.  "Net  investment,"  inrhiding  as  it  does  borrowed 
money,  mav  be  subject  to  abuse  by  reason  of  excessive  borrowing,  and  is  a 
very  difficult  figure  to  certify  to;  while  •*net  worth"  Is  rimplor,  fairer  as  be- 
tween the  dIflSerent  padiera,  and  more  just  to  the  public. 

(8)  That  the  rate  be  a  sliding  scale,  based  on  volume,  in  weight,  of  animals 
slaughtered ;  thereby  stimulating  production  of  meats  without  directly  encourag- 
ing expansion  into  other  lines.  ,       ,    ^  ^  a. 

(4)  That  the  normal  rate  for  the  five  chief  packers  be  7  per  cent  on  net 
worth  with  one-half  per  cent  increased  allowance  for  every  10  per  cent  increase 
in  weight  slaughtered,  and  one-half  per  cent  decrease  in  rate  for  every  10  per 
cent  decrease  in  weight  slaughtered;  the  maximum  profit  allowed  not  to  go 
abOYO  9  per  cent  It  Is  probable  that  this  rule  would  result  in  about  8  per  cent, 
Wbldl  Is  1  per  cent  more  than  their  actual  prewar  earnings. 

(5)  That  the  maximum  allowed  the  smaller  packers  be  9  per  cent,  increasing 
on  a  sliding  scale  to  11  per  cent,  but  without  a  decreasing  scale. 

(6)  That  profits  in  excess  of  the  prescribed  rates  be  either  turned  over  to 
the  Treasurer  of  the  United  States  or  applied  against  future  Government  pur- 
cdiases 

(7)  That  all  meat  packers,  as  well  as  slaughterers,  be  Included  within  the 
regulation,  except  that  no  licensee  doing  an  annual  buslneM  of  less  than 
$500,000  be  subject  to  Federal  limitation  of  profita  (The  mlnlmom  limit  for 
Canadinn  packers  Is  $750,000.)  •««  k.« 

In  reaching  these  conclusions  and  recommendations  the  commission  nas 
been  assisted  by  a  committee  of  three  of  Its  staff,  to  whldi  committee  was 
assigned  the  task  of  collecting  the  pertinent  facts  bearing  on  the  situation. 
The  following  reports  of  the  committee  are  inclosed  herewith,  and  in  them 
will  be  found  a  further  development  of  the  various  points  already  raised : 

(1)  Final  report  of  the  committee  signed  by  Messrs.  Walter  Y.  Dnrand, 
Stuart  CJhase,  and  Perley  Morse  &  Co.,  certified  public  accountants. 

(2)  Individual  report  of  Perley  Morse  &  Oo. 

(3)  Individual  report  of  Stuart  Chase.       .  ^     ^         ^,  «^  ^ 

In  connection  with  these  reports  the  commission  has  on  file  supporting  data 
and  exhibits  (notably  a  full  transcript  of  hearings  in  which  Mr.  Morse  ex- 
amined the  officers  of  the  five  chief  packing  companies  in  regard  to  the  present 
regulations),  and  will  be  glad  to  submit,  on  request,  such  additional  material 
as  may  be  necessary  to  a  more  complete  understanding  of  the  situation. 

Very  req^eetfollj,  _  , 

William  B.  Colver,  Chairman. 

John  Franklin  Fobt,  Commissioner, 
Victor  Muboock,  0ommi$9Umer. 

The  PusmxNT, 


ICAiaMUM  PBOFIT  UMllTATION        MEAT-3?ACKING  INDUSTRY.  6 


The  letter  of  Mr.  Hoover  commenting  on  the  foregoing,  together 
with  Mr.  Hoover's  covering  letter,  is  as  follows: 

JULY  8,  1918. 

Dear  Mr.  President:  I  am  inclosing  you  rather  a  lengthy  letter  in  reply  to 
the  Federal  Trade  Commission's  report  on  the  Food  Administration  maximum 
profits  allowed  the  packers.  I  have  the  feeling  that  if  the  Trade  Commis- 
sion report  is  made  public,  then  this  reply,  in  Justice,  should  he  given  Goln<d- 
dent  publicity.  I  do  not,  however,  believe  that  any  useful  purpose  is  served 
by  public  ventilation  of  interdepartmental  disagreements  as  to  governmental 
policy. 

The  matters  at  Issoe  are  matters  of  considerable  importance  and  principle. 

If  Congress  passes  sufficiently  strong  excess-profits  legislation,  it  will  auto- 
matically correct  the  situation  and  meet  the  views  of  both  the  Trade  Cora- 
mission  and  ourselves.  If  Congress  does  not  do  so,  I  am  afraid  you  will  need 
to  make  aome  decision  in  mattm  of  principle. 

My  proposal  is,  therefore,  that  the  whole  matter  shall  be  laid  aside  until 
the  action  of  Congress  is  determinable.  If,  however,  you  think  It  desirable 
to  have  the  matter  inquired  into  at  once,  I  would  like  to  suggest  that  the 
Federal  Trade  Oommlsslon  report,  together  with  the  letter  which  I  Inclose, 
should  be  submitted  to  some  Independent  person,  say,  Mr.  Baru<±L  or  ex-Gov. 
Stuart,  of  Virginia,  both  of  whom  could  advise  upon  the  matters  oi  principle 
Involved  without  necessarily  entering  into  details  of  fact. 
Tonrs,  faithfully, 

(Signed)         SDbbbbt  Hoovbb. 

The  PsBsiDBNT  or  the  Unfted  States, 

The  WhUe  Houae. 


Jtjly  8,1918. 

Dear  Mr.  President:  I  beg:  to  acknowledge  the  report  of  the  Trade  Commis- 
sion, which  you  have  so  kindly  forwarded  to  me,  upon  the  effect  of  the  Food 
iLdmlnlstratlon  reflation  of  the  packers'  profits. 

I  realize  fully  that  in  the  discussion  of  this  matter  any  sentence  uttered 
that  can  be  interpreted  as  In  support  of  profits  to  the  packing  industry  sub- 
jects one  to  the  charge  of  corrupt  Influence,  and,  on  the  other  hand,  I  recognize 
equally  the  easy  road  to  popularity  through  denunciation  of  these  profits.  It  is, 
howe?er,  our  duty  to  separate  the  emotional  aspects  In  these  matters  firon* 
Justice  and  national  necessity  to  secure  war  results. 

1.  At  the  Initiation  of  these  regulations  last  October  we  called  upon  the 
Federal  Trade  Confmission  for  information  and  advice,  and  members  of  the 
comnrfsBlon  participated  In  the  dIscusiAons  with  the  packers  which  led  up  to  the 
final  regulations.  Mr.  Davles,  who  conducted  the  investigation  of  the  packers 
and  who  participated  in  these  discussions,  has  since  made  the  statement : 

**  The  9  per  cent  limitation  of  profit  on  the  most  efficient  meat-packing  plants 
Is  out  of  all  proportion  to  the  much  larger  profits  made  by  the  relatively 
similarly  efficient  steel  and  copper  producing  agencies." 

During  the  month  of  March,  when  It  appeared  that  the  profit  limitations 
set  out  by  the  Food  Administration  were  proving  to  be  possibly  larger  than  was 
anticipated,  we  requested  through  you  that  the  Trade  Commission  should  iu- 
▼estlgate  the  working  of  the  regulations  and  advise  as  to  th^  fairness,  and 
we  arranged  that  they  were  to  take  over  the  auditing  of  the  accounts  to  det^- 
mlne  the  accuracy  of  the  packers'  profit  statements. 

2.  The  initial  regulations  were  formulated  on  the  basis  that  they  should 
limit  the  maxUnum  percentage  or  turnover  to  a  figure  no  greats  than  the 
prewar  average,  with  the  further  limitation  that  the  bulk  of  the  business — that 
is,  the  most  business — should  not  earn  over  9  per  cent,  and  that  the  specialty 
business  involving  foodstuffs  should  not  earn  more  than  15  per  cent.  Certain 
classes  of  business  were  excluded  altogether — ^that  Is,  the  businesses  In  foreign 
countries  and  nonfood  businesses,  such  as  sporting  goods,  banks,  and  manu- 
factures into  which  foo<lstuffs  did  not  enter,  all  these  being  outside  the  legal 
function  of  the  Food  Administration.  The  application  of  the  9  per  cent  limit 
fell  upon  75  per  cent  of  the  regulated  business,  the  meat  business  plus  transfer 
▼ahie  of  by-products  and  15  per  cent  limitation  applied  to  the  specialty  business 
and  completion  of  by-products.  These  percentages  were  computed  upon  the 
total  capital  used  by  the  packer  in  these  businesses,  including  borrowed  money. 


6    ^  MAXIMUM  PBOFIT  LIMITATION  ON  MSAT-PACIUNG  INDUSTE7. 


3.  The  Trade  Commission  report  advises  that  the  Food  Administration  should 
include  all  businesses  (although  this  is  not  legally  feasible),  and  that  a  flat 
maximum  of  profits  should  be  imposed  of  7  per  cent  plus  1  per  cent  additional 
for  each  10  per  cent  increase  in  volume  of  weight  of  animals  killed  up  to  a 
maxinmm  of  9  per  cent.  The  prospective  business  during  1918  would  probably 
allow  tiie  packers  to  realize  the  full  9  per  cent.  The  Trade  Commission  basis, 
howewet,  imcribes  tbat  borrowed  eftpltel  siMuld  be  ezcluded  from  calculations 
of  earnings. 

4.  Taking  as  a  basis  the  tables  accompanying  the  report  of  the  Trade  Com- 
mission and  excluding  the  nonfood  and  foreign  business,  and  combining  all  of 
file  fl^e  great  pcudcera,  we  iind  tlie  foUowtng  easential  figures: 

Total  investment  :  $858,219,000  . 

"Net  worth"  -  :   389,885,000 

Consequontlj'^  borrowed  capital   468,334,000 

Total  estimates  of  Food  Administration  maximum  profit   87,443,000 

Less  interest   21,407,000 

earning  ^OB^OOO 

The  profits  are  gross,  without  deduction  of  taxes,  wlilcli  would  amoutto  about 
$18,000,000,  leaving  about  $50,000,000  net.  The  Trade  Commission's  allowance 
of  9  per  cent  on  "  worth  "  as  applied  to  the  above  fijaire  of  $389,885,000  would 
give  a  net  earning  of  $35,089,650.  Whether  this  is  before  or  after  taxes,  we  do 
not  know,  but  assume  from  tbe  text  tiiat  It  Is  net  for  dlridend  purposes.  We 
would  submit  that  the  estimated  interest  figure  given  in  the  above  table  Is 
$2,000,000  less  than  the  actual  necessary  payment  on  a  5  per  cent  basis  and 
that  therefore  the  Trade  Commission's  recommendation  would  call  for  a 
reduction  in  the  maximum  eanied  on  this  class  of  business  of  about  $29,000,000 
without  taxes,  or  about  $13,000,000  if  their  figures  are  net.  This  would  imply 
a  reduction  of  about  40  per  cent  in  one  case  or  20  per  cent  In  the  other,  and 
therefore  makes  it  difficult  to  understand  the  statement  that  the  Food  Adminis- 
tration regulation  allows  the  earning  to  be  from  2|  to  8  times  as  great  as 
normal.  This  probably  arises  from  the  assumption  that  the  Food  Administra- 
tion could  control  outside  profits — ^wiUch  are  estimated  at  $25,000,000  per 
annum  for  the  five  packers. 

5.  The  combined  five  packers  wlU,  In  1918,  probably  kill  12,000,000,000 
pounds,  live  weight,  of  animals,  resulting  in  7,000,000.000  pounds  of  meat 
products.  A  profit  of  one  cent  a  pound  would  be  $70,000,000.  Therefore  the 
possible  profits  under  the  Food  Administration  regulation  are  less  than  one  cent 
a  pound  and  the  reduction  proposed  by  the  Trade  Oommlssion  will  amount  to 
about  one-third  of  a  cent  per  pound.  It  Is  necessary  to  emphasize  this  for  the 
producing  public  niay  be  misled  Into  the  belief  that  the  bare  volume  In  these 
figures — large  as  they  are — ^wlU  have  actual  and  tangible  results  in  reducing  the 
cost  of  living.  The  fact  of  the  case  is,  tliat  one-third  of  a  cent  per  pound 
seldom  reflects  Into  realization  in  the  bands  4^  Hie  subsequent  distributing 
trades  after  the  meat  has  left  the  packer. 

6.  The  Trade  Commission  has  the  feeling  that  there  is  little  or  no  risk 
attached  to  these  enterprises  and  that  therefore  their  earnings  should  be  re- 
duced to  practically  the  terms  of  a  public  utility.  We  feel  that  they  have 
overlooked  certain  great  risks.  Something  like  $250,000,000  Invested  In  food 
stocks  are  being  carried  at  high  prices  and  would  depreciate  30  per  cent  If 
communications  with  Europe  were  cut  off  30  days,  or  if  the  production  pro- 
gram in  force  should  outrun  the  meat  demands  and  tbere  should  be  a  fall  In 
tbe  animal  market.  An  Increased  shipping  program  that  would  open  otber 
food  markets  to  the  Allies  would  have  the  same  effect. 

7.  The  Food  Administration  regulations  permit  earnings  upon  borrowed  as 
well  as  packers*  own  capital;  whereas,  the  Trade  Commission  proposes  that 
no  profits  should  be  allowed  on  borrowed  capital.  This  appears  to  us  to  strike 
at  the  base  of  most  business  enterprises.  As  we  understand  it,  a  large  part  of 
the  commerce  and  trade  of  the  country  is  founded  on  the  earnings  of  an 
excess  sum  on  borrowed  capital  over  the  bare  interest  cost  and  we  feel  that  If 
tbls  principle  proposed  by  the  Trade  Commission  were  laid  down  as  a  prece- 
dent, it  would  produce  an  absolute  state  of  panic  in  the  United  States.  This 
industry  must  borrow  money  largely  on  short-time  paper  to  carry  the  large 
reserve  stocks  now  created  for  the  Army  and  the  Allies,  if  they  are  to  be 
contlnuouidy  provided  for.  We  are  confident  if  this  question  were  submitted  to 
any  group  of  competent  advisers  they  would  affirm  that  businesses  in  general. 


MAXIMUM  PBOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  7 


and  this  business  in  pafllevlar,  must  earn  a  profit  over  and  above  Interest 

charges  on  actual  capiUA  borrowed. 

8.  The  food  strategy  necessary  to  the  handling  of  war  Issues  has  involved 
the  increase  in  our  exports  to  the  Allies  and  our  Army  and  Navy  by  over  250 
per  cent. .  In  order  that  we  should  l>e  prepared  for  any  emergency  it  has  been 
necessary  to  call  upon  ttie  packers  to  Increase  their  stocks  in  storage.  Further- 
more, the  program  of  stimulation  of  production,  particularly  the  pork  so 
critically  needed  for  war  purposes  and  the  maintenance  of  a  stable  minimum 
price  on  hogs,  has  involved  the  packers  in  much  larger  stocks  than  would 
sonaally  be  acquired.  All  of  Uils  has  neoeasltated  an  Increased  borrowing  on 
the  part  of  the  packers  that  would  not  have  been  called  for  had  they  con- 
ducted their  business  in  the  normal  manner.  Therefore  the  compensation  of 
the  packers  must  bear  some  relation  to  their  borrowed  capitaL 

9.  We  must  recognise  tbat  this  great  oentrallKed  Industry  Is  tbe  cbeap  pro- 
ducer, and  that  an  administrative  limitation  of  maximum  profits  In  cerbdn 
of  their  specialty  businesses  that  will  reduce  them  to  popular  ideas  of  earnings 
will  throw  into  the  hands  of  these  centralized  institutions  all  the  business  in 
these  specialties  by  crowding  out  hl^-cost  producers,  and  tbus  will  eventually 
reduce  production  or  aggrandize  monopolj^.  We  can  not  agree  to  the  answer 
to  this  argument  In  the  report  as  follows : 

*'  If  it  appears  that  the  big  packers  can  operate  these  specialty  businesses 
more  ell^ctlvely  than  the  independents.  It  Is  sound  war-time  efficiency  to  let 
tihem  do  it.  The  only  danger  in  the  situation  would  be  the  failure  of  the 
Government  to  continue  its  regulation  of  the  packers  and  their  affiliated  com- 
panies after  the  war." 

It  is  our  belief  that  one  of  the  greatest  dangers  to  the  whole  of  tiie  food 
trades  of  the  United  States  is  the  further  expansion  of  these  big  packing 
industries  and  the  elimination  of  smaller  business,  and  individual  enterprise. 
It  is  not  sound  war-time  efficiency  to  enable  a  monstrous  growth  of  this  kind 
to  destroy  individual  enterprise  of  the  United  States  on  the  mere  hope  that 
regulation  of  the  industry  will  continue  after  the  war.  By  lliat  time  the 
competitors  will  all  be  dead. 

10.  There  is  one  prime  difficulty  In  all  regulation  of  profits  in  advance. 
Such  advance  regulation  must  provide  for  stimulation  in  production,  give  an 
incentive  to  serve  war  aims,  and  must  provide  sufficiently  wide  margins  to 
cover  all  possible  risk.  If  the  concern  regulated  Is  so  fortunate  as  to  come 
through  without  incurring  losses  from  the  risks  the  profits  may  be  inordinate. 
Having  narrowed  the  possible  profits  of  the  packer  to  less  than  1  cent  a 
pound  in  protection  to  producer  and  consumer,  our  point  of  view  was  to  en- 
courage him  to  follow  the  national  food  strategy  at  his  own  risk. 

11.  In  calling  upon  the  Trade  Commission  to  reexamine  this  problem,  we 
had  in  view  some  attempt  to  further  regulate  down  the  possible  maximum 
profits  of  the  packers. 

Since  that  time  proposals  have  been  formulated  in  Congress  to  enact  further 
strong  excess  profits  legislation.  Such  legislation  would  be  much  the  most 
satisfactory  remedy.  The  Food  Administration  regulations  having  in  some 
degree  accomplished  stability  in  the  market,  having  stimulated  production 
and  served  war  ends  and  eliminated  vicious  speculation,  should  be  broadly 
supplemented  by  tai  legislation  that  would  restore  to  the  public  any  Inordi- 
nate earnings  that  might  be  secured  by  the  more  fortunate  manufacturers 
This  method  also  has  the  great  advantage  of  equalizing  situations  between 
different  manufacturers,  which  Is  one  of  the  objects  sought  by  the  Trade 
Commission  plan. 

12.  An  advance  profit  regulation  operates,  if  too  strictly  drawn,  to  curb 
incentive,  to  destroy  production,  and  to  limit  efficiency.  The  sound  method,  if 
posiEdble,  Is  to  give  a  fairly  loose  profit  regulation,  sufficiently  strict  to  prevmit 
speculation,  stabilize  price  levels,  and  then,  by  taxation,  to  appropriate  to 
the  Government  any  extraordinary  profit  that  may  have  arisen.  There  Is  also 
a  psychological  point  of  great  Importance;  any  given  business  enterprise 
would  willingly  pay  In  the  shape  of  a  tax  whatever  may  have  been  Its 
extraordinary  profits.  But  if  its  profits  are  limited  in  advance  to  the  same 
sum,  the  same  enterprise  will  feel  It  Is  restricted,  unable  to  protect  Itself 
against  risks  of  loss  and  the  reaction  will  damage  the  efficiency  and  courage 
In  the  conduct  of  this  enterprise. 

In  conclusion,  we  are  not  In  disagreement  as  to  the  fact  that  the  packers 
may  earn  too  large  profits  under  the  ragnlattona  We  are  la  disagreenient  as 


8       MAXIMUM  PBOflX  LlMlXATIOlSr  ON  M£AItPACKING  INDUSIBY. 


to  the  method  of  establishing  regulation  and  perhaps  as  to  the  actual  per- 
ceutage.  On  the  other  hand,  we  feel  that  the  whole  matter  can  quite  well 
be  deferred  until  tbe  climracter  et  tlie  action  now  being  taken  by  Congress 
can  be  determined.  If  it  should  prove  Ineffective  to  accomplish  these  ends, 
it  would  bo  necessary  to  revise  the  regulations  and  I  will  take  it  up  Imme- 
diately upon  my  return  from  Europe. 

I  have  written  a  letter  to  Senator  Simmons,  at  his  request,  on  the  whole, 
relation  of  a  properly  fbunded  excess  profits  tax  In  its  bearing  on  regulation 
of  industry,  which  expresses  more  fully  the  views  which  we  have  formulated 
In  this  matter,  which  I  transmit  herewith. 
Yours,  faithfully. 

Hnamr  Hoovb. 

The  PBBsmiNT  ov  the  United  States, 

The  White  House. 

The  memorandum  of  the  commission,  of  July  20, 1916,  in  the  form 
of  a  letter  to  the  President,  but  not  then  sent,  is  as  follows : 

Federal  Tbade  Comhission, 

Ofeicb  of  thb  Ohaibman, 
WoMhington,  July  20,  1919, 

DCABifB.  Pbesident:  It  is  with  reluctance  that  we  address  you  in  the  matter 
of  the  commission's  report  to  you  under  date  of  June  28, 1918,  and  Mr.  Hoover's 
letters  to  you  apropos  that  report. 

It  may  save  your  tlnfe  If  we  restate  briefly  the  history. 

I.  At  Mr.  Hoover*s  request  on  March  26, 1918,  a  comndssion  was  appointed  by 
the  President  to  consider  the  Food  Adfnfntetration'a  regulation  of  the  meat 
packers. 

II.  On  May  27, 1918,  the  commission  unanimously  reported  to  you. 

III.  Among  other  suggestions  was  one  tliat  the  FofltM  ul  Trnde  Commission  re- 
port to  you  before  July  1,  1918,  on  the  reasonableness  of  the  present  profit  regu- 
lation of  the  meat-packing  companies  as  imposed  by  the  Food  Administration. 

IV.  On  May  27, 1918,  the  President  approved  the  report  of  the  commission  and 
directed  that  this  and  other  work  suggested  be  undertaken  by  the  comndssion. 

V.  On  the  same  day,  the  Federal  Trade  CJommiaaion  was  notified  of  your  direc- 
tion by  Mr.  Hoover. 

YI.  On  June  28, 1918,  report  was  made  to  you  as  to  the  reasonableness  of  the 
profit  margin  under  the  present  regulations.  The  commission  found  that  the 
packers'  maximum  profits  were  unreasonable  and  suggested  certain  modifica- 
tions of  regulation. 

VII.  On  July  8.  1918,  Mr.  Hoover  addressed  two  letters  to  you  concerning 
the  report  of  the  comndssion.  Mr.  Hoover's  letters  seem  to  revolve  around  a 
question  of  publicity.  This  is  unfortunate.  The  commission's  report  made  to 
you  at  your  direction  was  not  made  with  an  eye  to  public  reading  but  to  the  end 
that  your  direction  made  at  Mr.  Hoover's  request  might  be  faithfully  fUUined 
to  the  beet  of  our  ability. 

We  agree  that  no  "  useful  purpo5?e  is  served  by  public  ventilation  of  interde- 
partmental disagreements."  We  know  of  no  such  a  disagreement  here.  Certain 
regulations  were  in  effect.  It  was  questioned  whether  or  not  Oiey  might  in  the 
public  interest  be  amended.  We  suggested  certain  amoidments.  That  seems  to 
end  our  connection  with  the  matter. 

We  have  not  suggested  that  our  report  or  any  part  of  it  be  made  public,  and 
it  would  seem  from  your  letter  of  July  8  that  a  confusion  arose  between 
our  rfport  as  to  maximum  profits  dated  June  28,  1918,  and  that  part  of  our 
report  on  the  general  food  investigation  having  to  do  with  the  meat-packing 
Industry,  made  to  you  under  date  of  July  3.  It  was  this  latter  report  that 
seemed  to  be  a  proper  matter  to  be  made  public  in  that  it  suggested  certain 
legislation  and  naturally  would  be  a  public  document  The  report  of  June  28, 
on  the  reasonableness  of  the  maximum  profits  suggested  amendments  to  regu- 
lations which  might  be  made  or  rejecte<l  by  the  Food  Administration  without 
additional  legislation  and  hence  might  properly  be  a  departmental  matter  and 
not  a  public  one. 

The  Federal  Trade  Commission's  report  on  maximum  profits  was  not  made 
in  a  spirit  of  criticism,  but  was  made  in  good  faith  and  upon  invitation.  It 
was  desired  that  it  might  be  helpful.  Having  been  made,  Its  only  value  con- 
•Ists  IB  What  helpfuliMBB  may  M  iKtm<led  from  It 


ICAXIKUM  PBOFIT  LIMITATION  ON  MEAT-PACiOTO  INDUSTBY.  9 


In  the  longer  of  the  two  letters  of  July  8,  Mr.  Hoover  says : 
"  10.  In  calling  upon  the  Trade  Ocmimlsirion  to  leexamlne  this  problem,  we 
had  in  view  some  attempt  to  further  regulate  down  the  poaslble  maximum 

profits  of  the  packers. 

"  Since  that  time  proposals  have  been  formulated  in  Congress  to  enact  further 
strong  excess  profits  legislation.  Such  legislation  would  be  much  the  meet 
aatlBfkietory  r^oedy.  ^   •   ♦  »• 

It  appearing  that  the  report  reriuested  is  no  longer  desired,  the  commission 
w^ould  cheerfully  withdraw  it  were  it  not  for  the  fact  that  two  questions  have 
been  raised  by  Mr.  Hoover's  letters.  These  questions  are  of  such  sertom  Im- 
port that  we  ought  not  in  good  conscience  be  bound  by  sHenoe. 

(1)  The  doctrine  is  laid  down  that  in  computing  return,  borrowed  money 
shall  be  taken  in  as  invested  capital. 

It  is  stated  in  Mr.  Hoover's  longer  letter  on  page  6  that  the  declaration 
of  the  principle  that  borrowed  money  should  not  be  included  as  invested  capi- 
tal, '*  would  produce  an  absolute  state  of  panic  in  the  United  States ; "  and 
further,  it  is  stated  that  "  if  this  question  were  submitted  to  any  group  of 
competent  advisers  "  it  would  be  decided  adversesy  to  the  position  takei  by  the 
commission. 

After  diligent  inquiry  we  can  find  no  competent  authority  in  the  United 
States  that  takes  a  view  contrary  to  that  expressed  by  the  commission.  We 
quote  Col.  Robert  H.  Montgomery,  pages  572-573,  Income  Tax  Procedure,  1918, 
a  standard  and  accepted  work: 

"  Capital  in  a  commercial  sense  is  what  remains  after  debts  are  provided  for. 
A  man  with  no  capital  of  his  own  may  borrow  .$1,000  and  lose  it  in  his  trade 
or  business.  He  still  owes  it  As  before,  he  has  no  capital,  and  now  he  does 
not  even  have  economic  capital. 

"  Borrowed  money  is  the  capital  of  the  lender,  not  of  the  borrower.  Much 
has  been  said  in  favor  of  considering  borrow^ed  money  as  invested  capital,  but 
the  author  thinks  that  the  arguments  used  are  fallacious  and  impracticable. 
If  banks  were  to  consider  all  deposits  as  invested  capital,  a  curious  situation 
would  arise.   Its  depositors  mi^t  not  like  the  idea. 

"  The  inclusion  of  interest  as  an  expense  of  the  business  is  a  sufficient  recogni- 
tion of  the  use  of  borrowed  money  by  the  borrower. 

"  In  the  case  of  corporations  where  the  limitation  on  Interest  deduction 
may  operate  to  prevent  credit  for  the  full  amount  paid,  there  is,  of  course,  an 
injustice,  but  the  remedy  is  to  remove  the  restrictions  oa  the  interest  allow- 
ance, not  to  consider  borrowed  money  as  capital." 

Being  asked  if  there  was  any  more  extensive  written  authority  on  this  sub- 
ject, Ool.  Montgomery  has  told  us  that  since  there  is  not  even  a  schism  on  this 
principle  and  since  it  is  of  universal  acceptance^  tts  man  statement  was  con- 
sidered by  him  to  be  sufficient  in  his  textbook. 

Col.  Montgomery  is  an  attorney,  a  certified  public  accountant,  a  former  presi- 
dent of  the  American  Association  of  Public  Accountants,  a  professor  of  account- 
ing in  Columbia  University  and  at  present  the  expert  adviser  of  the  War  De- 
partment in  such  matters  as  well  as  the  War  Department's  representative  on 
the  price  fixing  committee  of  the  War  Industries  Board. 

The  second  question  is  raised  by  the  faet  that  running  through  both  of  Mr. 
Hoover's  letters  addressed  to  you  under  date  of  July  8,  is  the  thought  that 
legislation  providing  for  stronger  excess  profit  taxes  will  "automatically  cor- 
rect the  situation  and  meet  the  views  of  both  the  Federal  Trade  Commission 
and  ourselves  (the  Food  Administration)." 

The  Federal  Trade  Commission  dissents  wholly  and  entirely  from  this  theory. 
Before  excess  profit  taxes  may  be  collected  from  business  concerns,  excess  profits 
must  first  be  taken  from  the  consuming  public  or  from  the  Government  of  the 
United  States  in  the  form  of  inflated  prices.  It  la  not  business  but  the  people 
both  as  consumers  and  taxpayers  and  botnH  buyers  who  provide  the  moD^ 
collected  indirectly  as  excess  profit  taxes. 

Our  understanding  is  that  the  excess  profits  tax  was  not  a  revenue  device, 
primarily,  but  a  device  designed,  first,  to  discourage  profiteering,  and,  second, 
to  equalize  any  inequity  which  might  be  worked  in  the  application  of  general 
price-fixing  rules  where,  in  order  to  secure  production  from  high-cost  concerns, 
prices  had  been  fixed  so  high  as  to  give  undue  profits  to  low-cost  concerns. 
It  is  not  our  idea  that  prices  should  be  fixed  high  so  as  to  lo  yield  excess  profits 
taxes  but  that  excess  profits  taxes  are  collected  to  prevent  fixed  prices  from 
yielding  confirming  earaings  in  the  hands  of  stockholdera. 


10     MAXIMUM  PBOFIT  LIMITATION  ON  MSAT-PACKINQ  INDUSXBY. 


We  dissent  from  the  theory  of  taking  back  30  or  50  or  60  or  80  cents  from  a 
doUar  improperly  taken  from  the  people  as  consumers  or  from  the  Gorernment 
It  is  attempting  to  lift  one's  self  by  his  boot-straps  and  losing  60  or  40  or  20 
per  cent  of  the  energy  employed.  A  price  structure  built  upon  such  a  theorr 
this  can  not  and  should  not  be  tolerated  by  the  people  of  the  country. 

Aside  from  the  impossiblliiy  of  sndi  a  prlndide  yiewed  from  the  public 
standpoint,  it  has  a  vicious  effect  upon  business  itself.  The  reflect  shows  itself 
in  tax  evasions  and  worst  of  all,  in  inviting  and  encouraging  wasteful  and 
extravagant  business  operationa  When  a  business  reaches  the  point  that  its 
excess  profit  tax  will  operate  to  take  away  a  oonrtderable  part  of  Its  surplus 
earnings,  it  inevitably  is  tempted  and  in  many  many  cases  the  temptation  has 
proven  irresistible,  to  spend  extraordinary  sums  in  unnecessary  expenditures. 
These  take  the  form  of  advertising  looking  to  the  building  up  of  present  or 
nitare  good  will  or  of  repairs  and  bettorments  not  presently  needed  or  made 
with  an  eye  to  the  future  and  in  anticipation  of  a  return  to  peace-ttme  iNUria 
Such  an  expenditure  Is  made  on  the  theory  that  out  of  every  dollar  so  speot 
the  Government  must  contribute  unknowingly  from  60  or  20  per  cent  of  Um 
cost. 

Since  the  Government  takes  50  per  cent  of  the  meat  product  of  the  papers 

and  all  the  packer's  heavy  hides,  and  since  the  civilian  public  consumes  the 
remaining  50  per  cent  of  the  meat  product,  we  are  wholly  unable  to  see  that 
any  tax  legislation  which  would  cover  into  the  United  States  Treasury  some 
percentage  of  excess  profit  would  thereby  **regtme  to  the  public  any  Inordinate 
earnings  that  might  be  secured." 

The  foregoing  is  written  to  you  in  order  that  you  may  know  the  principles 
to  which  we  are  holding  and  with  the  hope  that  we  may  be  advised  if  in  your 
Judgment  we  are  in  error.  Manifestly,  tills  letter  Is  not  written  with  an  idea 
that  it  is  a  public  document,  and  in  this  connection  we  would  say  that  w%  can 
see  no  reason  for  the  publication  either  of  our  report  to  you  of  the  maximum 
profits  of  the  packers  under  food  regulations,  or  either  of  Mr.  Hoover's  letters 
founded  thereon. 

If,  however,  the  Federal  Trade  Commission  is  asked  by  (Congress  to  make 
any  contribution  to  the  discussion  as  to  excess-profit  tax  legislation,  it  will 
feel  constrained  to  make  reply  along  the  lines  herein  indicated,  in  which  case 
we  will  find  ourselves  not  agreeing  with  the  doctrines  laid  down  by  Mr 
Hoover  in  his  letter  to  Senator  Simmons,  reference  to  which  he  makes  in  his 
letter  to  you.  Such  a  statement  on  your  part,  however,  will  not  be  made  with 
any  idea  "  that  it  is  a  public  ventilation  of  interdepartmental  disagreement  '* 
but  rather  the  reply  that  our  conscience  and  our  sense  of  public  duty  will 
require  us  to  make. 

By  direction  of  the  CCNUBiiaBioo. 
Respectfully, 

nip-sn-NT,  WuxiAM  B.  COLVE..  Cfa.in»«*. 

White  House. 

The  three  reports  of  the  expert  aoconntants  referring  to  the  above 
are  attached  hereto  as  exhibits. 
By  direction  of  the  coniBiissioiL 
Eespectfullyy 

Victor  Murdock, 
August  24,  1918.  ^ 


EXHIBIT  L 


Federal  Trade  Commission, 

Washmgton, 

Gentlemen  :  Having  been  directed  by  you  to  ascertain  the  facts 
pertinent  to  the  question  of  the  reasonabl^ess  of  the  maximum  profit 
limitations  imposed  on  meat  packing  and  slaughtering  companies  by 
the  present  regulations  of  the  Food  Administration,  the  undersigned 
beg  to  report  Uie  results  of  their  investigation  as  follows: 

THE  PRSSSNT  REGULATIONS. 

The  present  profit  regulations,  a  copy  of  which  is  attached  as 
Exhibit  I,  are  in  salient  features  as  follows :  • 

1.  The  slaughtering  companies  of  the  country  are  grouped  in  two 
divisioiis,  the  nrst  comprising  all  those  having  annual  sales  of  $100,- 
000,000 'or  over,  and  tne  second  all  remaining  licensees.  The  only 
companies  in  the  first  division  are  Swift  &  Co.,  Armour  &  Co.,  Mor- 
ris &  Co.,  Wilson  &  Co.  (Inc.) ,  and  Cudahy  Paddng  Co. — commonly 
known  in  the  tarade  as  the  "  Big  Five." 

2.  All  companies,  large  ana  small,  are  limited  to  a  profit  not  to 
exceed  2^  cent  of  uie  amount  of  their  gross  sales  in  the  meal 
business. 

3.  The  five  companies  in  Division  I  are  further  subjected  to  limi- 
tations of  profit  on  their  investment  in  certain  lines  of  business. 
For  the  purpose  of  the  regulation,  the  total  business  of  the  five 
companies  in  Division  I  is  segregated  in  three  classes : 

Class  I. — The  meat  business  and  the  more  important  by-products, 
both  food  and  nonfood,  including  for  example,  hides  and  pelts,  fats, 
lard,  sausage,  canned  meats,  onal,  and  including  the  operation  of 
private  car  lines. 

Class  II. — Specialty  business,  including  leather,  soap,  commercial 
fertilizer,  glue,  and  other  businesses  using  appreciable  quantities  of 
animal  raw  materials.  ^  ^  . 

Cla88  IIL — ^All  other  businesses,  including  poultry,  butter,  eggs, 
cheese,  fresh  and  canned  fruits  and  vegetables,  cotton  seed  oil,  lard 
compounds,  and  substitutes,  investments  in  slock  yards,  and  other 
outside  companies,  in  foreign  slaughtering  companies,  etc. 

4:  The  basis  on  which  the  linuted  profit  rates  on  investment  of 
the  *^Big  Five"  are  catenated  is  the  total  ''net  investment"  (cap- 
ital stock,  surplus,  and  total  interest-bearing  obligations  of  all 
forms)  for  thia  year  employed  in  tlie  business  for  the  respective 

11 


12     MAXIMUM  PBOFIT  LIMITATION  OK  MEAT-PACKINO  IKDtTdTftlt. 


5.  The  maximum  profit  to  which  the  "  Bi^?  Five  "  are  limited  on 
investment,  in  addition  to  the  limit  of  2^  per  cent  on* sales  in  the 
meat  business,  is: 

Class  I.  Meat  business,  9  per  cent. 

Class  II.  Specialty  business,  15  per  cent. 

Class  III.  All  other  business,  no  limitation. 

INYESnGATIOK  BT  AOCOUNTANTfik 

Immediately  upon  receiving  the  President's  direction  to  report  on 
th»  reasonableness  of  the  meat  packers'  profits,  tlie  commission  as^ 
signed  to  the  task  of  collating  the  pertinent  facts  in  this  matter 
to  a  committee  of  thi  ee  of  its  staff  consisting  of  Mr.  Walter  Y. 
Durand,  in  charge  of  its  meat  investigations,  Mr.  Stuart  Chase,  its 
accountant  in  cnarge  of  the  determination  of  uniform  accounting 
methods  in  the  meat-packing  industry,  and  Messrs.  Perley  Morse 
&  Co.,  certified  public  accountants,  of  New  York,  employed  es- 
pecially for  this  work.  Mr.  Harvey  8.  Chase,  of  Harvey  S.  Chase 
&  Co.,  certified  public  accountants  of  Boston,  also  aided  in  a  con- 
sulting capacity.  Approaching  the  problem  from  different  an^jles 
and  preparing  their  statements  independently,  each  of  these  inves- 
tigators reached  results  in  practical  harmony. 

The  summary  reports  of  Mr.  Stuart  Chase,  with  whom  Mr. 
Samuel  W.  Tator  of  the  commission's  accounting  staff'  collaborated, 
and  of  Perley  Morse  &  Co.  are  attached  as  Exhibits  II  and  HI,  only 
a  digest  of  them  being  here  stated.  In  connection  with  Perley  Morse 
A  (yO.'8  report  is  a  full  transcript  of  hearings  in  which  Mr.  Morse 
examined  the  officers  of  the  five  chief  packing  companies  as  to  their 
suggestions  regarding  change  in  tlie  regulation,  and  as  to  the  facts 
of  weir  hnsimss  pertinent  to  this  inquiry.  These  fwdts  and  tibe  views 
of  the  packers  have  heen  carefiiUy  weighed  by  your  committae  in 
reaching  its  conclusions. 

Digest  of  report  of  Perley  Morse  d;  Co^  certified  public  account" 
ants. — The  report  of  Perley  Morse  &  Co.  soggests  a  permanent  plan, 
and  for  imniediate  practicability  a  temporary  pbji,  substaati^L^ 
as  follows: 

Suggestion  for  permanent  plan : 

1.  Would  regulate  by  classes,  with  differential, ,  between  classes, 
but  no  unregulated  class. 

2.  Would  base  rate  on  net  worth,  not  allowing  profit  on  borrowed 
money. 

3.  Would  adjust  inequalities  in  valuation. 

(a)  Plant  at  cost  plus  assessments  for  improvements. 

(b)  Buildings  and  machinery  at  cost  less  a  uniform  depreciation. 

(c)  Inventories  at  cost. 

(d)  Reserve  from  surplus  lor  increased  cost  of  replacing  fixed 
assets. 

4.  Wonld  aggressively  investigate  control  of  subsidiary  and  re- 
lated ei^iffprises  and  provide  for  records  enabling  a  consolidated 
balance  slieet,  the  elimination  ol  iateroraapany  profits,  and  the  pre- 
vention of  profit  concealment. 

5.  Believe  present  estimated  rate  of  profits  too  high. 

6.  Recommend  rate  of  10  per  cent  on  entire  investment  (net 
worth)  as  generous,  with  provision  lor  replacement  as  in  d  (d). 


KAxnimc  VBonr  LnoTATioir  oxr  uftaHricKiirG  htdustby.  IS 


SiiflKeBtioii  lor  temporary  plan : 

1.  Ktieve  permanent  policy  outlined  above  can  not  be  adopted 
ttt  present  because  as  a  prerequisite  we  must  do  eertun  thiai^  le- 
quiring  time  and  full  investigation,  namely — 

(a)  Certify  investm^t  by  classes.  ^^^||^ 
(h)  Establish  uniform  accounting  methods.  sBB 
[c)  Determine  subsidiary  and  allied  enterprises. 

2.  Recommend  as  temporary  plan  regulating  business  as  whole 
without  segregation  of  classes,  on  the  basis  of  net  worth,  and  at 
the  rate  suggested  for  the  permanent  plan. 

Digest  of  report  of  Stuart  Chase^  certified  public  dccountant^  and 
Samuel  W.  Tator. — The  report  of  Mr.  Chase  and  Mr.  Tator,  at- 
tached as  Exhibit  III,  may  be  briefly  outlined  as  follows: 

Reasonableness  of  maximums: 

1.  The  rate  of  earnings  on  net  worth  allowed  under  the  presoit 
regulation,  based  on  estimates,  is  as  follows: 

Oass  1, 13  to  17  per  cent  (covers  from  60  to  78  per  cent  of  invest- 
ment). 
Oass  11,  24  to  84  per  xsesat 

Class  in,  28  to  42  per  cent,  omitting  Armour,  whose  figures  are 
not  comparable  because  excluding  foreign  business. 

(Classes  II  and  III  cover  from  22  to  40  per  cent  of  the  investment.) 

2.  The  average  rate  allowed  on  net  worth  for  all  classes  is  about 
19  per  cent. 

3.  The  packers  estimated  rate  for  1918  is  two  to  three  times  their 

prewar  rat>e. 

4.  Conclusion.  If  the  present  form  of  regulation  is  continiied| 
the  rate  allowed  on  Classes  I  and  II  should  be  lessened. 

Advisability  of  regulation  by  classes: 

1.  It  is  difficult  without  months  of  work  by  a  large  force  of  ex- 
perts— 

(a)  To  apportion  investment  by  classes. 

(b)  To  determine  transfer  prices. 
ic)  To  apportion  overhead. 

1^)  To  apportion  branch-house  expense. 
{e)  To  prevent  diversion  of  profits. 

2.  Conclusion.  Regulation  by  classes  should  be  abandoned  and 
one  rate  should  be  applied  to  total  business. 

Su^ested  improvemeints  in  other  features  of  the  regulations: 

1.  Himinate  the  allowance  of  profit  on  borrowed  money. 

2.  Establish  "cost  less  depreciation"  as  principle  of  valuation 
of  fixed  assets,  with  depreciation  sufficient  to  allow  tor  increased 
cost  of  construction. 

3.  Modify  the  present  tacit  sanction  of  unlimited  capitalization 
of  profits. 

4.  Consider  the  Canadian  Government  regulations  for  further  de- 
tailed suggestions  for  improvement. 

5.  Examine  question  of  inventory  valuations  and  establish  uniform 
procedure. 

Proposed  method  of  regulation: 

1.  Recommend  a  sliding  scale  plan  for  packers  in  class  of  $100,- 
000,000  or  over. 

(a)  Allow  profit  of  10  per  cent  on  net  worth  if  weight  volume 
of  animals  slaughtered  exceeds  weight  volume  in  1917.   Allow  1 


14     MAXIMUM  PBOFIX  IJMTTATIO»  OST  MfiAX-PAOKING  INDUSTBY. 


per  cent  additional  profit  for  each  10  per  cent  increase  in  weight 
volume  up  to  a  maximum  of  16  per  cent.  For  each  decrease  of  10 
per  cent  in  weight  volume,  deduct  1  per  cent  from  allowed  profit 
down  to  a  minimum  of  7  per  cent  profit. 

2.  All  excess  profits  to  go  to  the  Government,  but  an  inventory 
reserve  to  be  set  up  from  this  excess  profit  out  of  which  the  Gov- 
ernment shall  pay  actual  inventory  losses. 

PUBPOSES  AND  PBINCIFIiBB  OF  PEOFIT  LIMITATION. 

One  of  the  purposes  of  a  profit  limitation  on  foods,  the  committee 
takes  it,  is  to  prevent  profiteering,  and  to  effect  a  reduction  in  prices 
or  at  least  prevent  their  rising  unjustifiably,  to  the  end  that  the  spirit 
and  rosourros  of  our  people  may  be  devoted  without  reservation  or 
im})airment  to  the  successful  prosecution  of  the  war.  The  second 
l>urpose  is  to  regulate  in  such  a  way  as  to  increase  production  of  food. 
Not  only  is  it  needful  that  the  spirit  and  the  strength  of  the  country 
shall  be  heightened  to  greatest  pitch  in  the  production  of  all  war  sup- 
plies, but  the  production  and  distribution  of  food,  the  very  thing 
which  is  to  be  limited  in  profit,  must  be  stimulated  and  assured. 

In  addressing  itself  to  these  public  objects,  regulation  should  also 
aim  to  be  just  to  the  packers  and  fair  as  between  one  of  them  and 
another.  As  the  seriousness  of  America's  part  in  this  war  comes 
home  to  all  of  us,  the  business  men  of  the  country  wiU  not  seek  a 
generous  profit  but  simply  a  just  one,  ready  without  undue  subsidy 
to  devote  their  energies  toward  greater  production.  The  packers  as- 
sured a  just  return  will  not  be  heard  to  ask  that  they  be  aLk>wed  to 
continue  extending  their  business  wholly  out  of  profits,  but  at  the 
stabilized  rates  will  see  that  they  can  rMulilv  arrange  the  financing 
of  such  new  capital  as  may  be  necessary  to  the  deyej&pment  of  their 
share  of  the  war  work. 

One  of  the  principles  which  it  seems  to  the  committee  underlies 
the  matter  of  the  reasonableness  of  a  profit  limitation  is  its  relation 
to  normal  returns  in  a  competitive  industry  in  times  of  peace. 
Another  is  the  extent  of  risk  involved  in  the  nature  of  the  busi- 
ness, and  the  effect  of  war  conditions  on  that  risk.  Another  princi- 
ple is  that  when  businesses  expand  greatly  in  volume,  the  rates 
of  profit  on  investment  tend  to  fall,  and  rightly  so,  especially  when 
as  here  the  businesses  of  these  large  concerns  have  reached  such  a 
magnitude  that  they  are  their  own  insurance,  on  the  principle  of 
averages,  against  the  vicissitudes  a  small  concern  is  subject  to.  When, 
as  herej  the  increased  volume  of  business  is  caused  by  the  war 
and  is  m  no  way  the  result  of  the  enterprise  of  tbe  packers,  this 
principle  is  especially  applicable.  Again,  the  profit  reguktion 
should  not  be  thrown  in  the  form  of  a  rate  on  sales,  because  this 
is  a  temptation  to  increase  prices  in  order  that  the  allowed  rate  may 
be  secured  on  a  larger  money  volume.  The  temptation  here  is  comi)ar- 
able  to  that  of  a  man  with  a  "cost  plus  percentage"  contract  Fi- 
nally, the  regulation  should  accord  throughout  with  sound  account- 
ing principles,  and  any  discretion  as  to  the  reasonableness  of  the 
rate  should  be  exercised  frankly  and  openly  at  a  single  point — 
namely :  what  the  rate  shall  be.  It  is  safest  and  clearest  to  keep 
on  a  sound  accounting  basey  and  to  make  any  adjustment  that  cir- 


i 


MAXIMUM  FBOrrr  LIMITATION  ON  MBAT-PACKIN6  INDUSTET.  16 


> 


cumstances  may  in  justice  require  by  simply  raising  or  lowering; 
the  allowed  rate.  For  example,  a  depreciation  rate  should  be  caC 
Ciliated  with  reference  to  cost  and  to  estimated  life  of  property 
without  allowance  for  increased  replacement  cost,  the  increase  in 
construction  cost  being  provided  for,  ratlin,  out  of  new  capital  which 
shall  in  turn  be  depreciated. 

!     -  THE  committee's  FINDINGS. 

The  committee  finds  that  the  present  regulations  of  the  meat 
packers'  profits,  though  considered  with  great  care  by  the  Food 
Administration  at  the  time  of  their  adoption,  and  in  many  respects 
sound  in  principle,  have  proved  impracticable  to  administer  and 
do  not  put  as  great  a  limitation  on  profits  as  is  necessary  in  the 
public  interest  It  finds  that  the  maximum  rates  of  pront  estab- 
lished by  the  regulati<m  are  unreasonably  high  and  that  in  order  to 
make  reasonable  rates  effective  and  enforoeaUe  the  plan  of  the  regu- 
lation as  well  as  the  permitted  rate  of  profit  should  be  changed. 

Present  refffdation  by  clome»  of  business  impracticable. — As  to  the 
plan  of  the  regulation  the  committee  is  of  the  opinion  that  the  at- 
tempt to  segregate  the  packers'  businoss  into  classes  with  varying 
profit  limitations,  though  perhaps  more  scientific  than  a  fiat  rate  on 
their  total  business,  will  not  result  in  any  effective  limitation  until 
the  segregation  of  their  investment  shall  nave  been  accurately  estab- 
lished by  classes.  In  any  event^  if  the  plan  of  classification  of  busi- 
ness is  followed  no  class  of  their  business  should  be  exempted  from 
profit  limitation.  The  committee  finds  that  the  packers'  books  do 
not  now  show  the  segregation  of  investment  by  classes  of  business. 
The  present  regulation  is  proceeding  on  a  dangerous  basis  in  that 
the  figures  of  segregation  as  estimated  by  the  packers  are  open  to 
serious  question,  and  that  correct  classification  of  investment  will 
require  months  of  intensive  work.  It  was  perhaps  chiefly  in  reoog- 
nitioa  of  t^  danger  that  the  Food  Admmistration,  prior  to  the 
recomsMiidatioDS  of  the  President's  Meat  Committee,  suggested  that 
tte  FedenA  Viade  Commission  undertake  the  determinatum  of  uni- 
form accouBting  methods  for  the  packers,  including  a  thorough  ex- 
amination of  tneir  investment  in  different  lines. 

It  is  the  committee's  belief,  therefore,  that  for  the  present  year 
at  least  the  profit  regulation  of  the  packers  be  based  on  their  busi- 
ness lumped  as  a  whole,  without  segregation  or  exemption  of  any 
kind.  It  is  the  opinion  of  the  committee,  further,  however,  that 
the  accounts  of  the  packers  should  be  subjected  to  sufficient  exam- 
ination and  study  to  determine  with  substantial  accuracy  the  true 
investment,  cost  of  production,  and  profits,  in  which  connection,  a 
better  basis  can  be  arrived  at  for  concluding  whether  any  limitation 
of  profits  through  classification  of  the  business  is  preferable  ancl 
practicable.  One  principle  in  particular  seems  to  argue  for  the 
classification  of  the  business  and  separate  and  distinct  rates  of  profit 
in  the  different  clashes,  namely,  that  the  conditions  of  risk  and 
competition  or  relative  absence  of  competition  in  Inisiness  un- 
douiitedly  vary  somewhat  between  different  classes. 

aaia  upon  wMeh  return  9k&uld  be  computed. — ^The  rate  of  retom 
lid  be  based  upon  the  net  worth  of  the  buanesB,  is  upon  capital 


16 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY. 


stock  plus  surplus.    Net  worth  is  the  measurement  of  the  stock-  4 
holder  s  investment  on  which  he  is  entitled  to  a  return.   Any  other 
basis,  such,  for  instance,  as  laid  down  in  the  present  rules  and  regu- 
lations, which  makes  special  provision  for  interest-bearing  obliga- 
tions  as  a  part  of  investment  is  questionable,  and  in  this  case  dis-  > 
tmctly  inaavisable.   Such  methoa  provides  an  inoeative  to  exoes- 
sive  bc»rrowin^,  to  carrying  large  amounts  of  unnecessary  cash  on 
hand,  and  to  dow  collection  on  aooonmts  reoeiTftble.  In  the  paddng 
business  the  element  of  Ixurowed  money  does  not  jeopardize  the 
interest  of  the  stockholder,  for  jpackerr  paper  is  usually  covered  ^ 
by  a  liquid  inventory,  and  is  considered  the  best  of  secority  in  bank- 
ing circles. 

Net  worth  is  a  figure  which  is  readily  c(nnputed  and  which  re- 
mains constant  throughout  the  accounting  period.  It  is  easily 
watched,  requiring  little  audit,  while  the  method  now  employed  i 
necessitates  constant  and  exhaustive  supervision  throughout  the  pe- 
riod under  review  to  prevent  juggling  of  the  amount  upon  which 
the  return  is  based. 

An  allowance  on  net  worth  puts  stockholders  in  all  packing  com- 
panies on  the  same  footing,  and  by  preventing  one  from  profiteering,  ^ 
all  are  so  prevented.   The  ultimate  criterion  of  profiteering  is,  and 
necessarily  must  be,  the  return  to  the  individual  shareholder  after 
all  costs  and  interest  obligations  have  be^n  met. 

The  principles  governing  the  computation  of  net  worth  are  as 
follows:  Land  should  be  valued  at  cost,  plus  assessments  for  im- 
provements; buildings  and  machinerv  at  cost  less  depreciation;  in- 
ventories at  cost  wherever  it  is  possible  to  determine  cost 

Bigk. — ^The  risk  of  the  meat-packing  business  in  ^nend  and  par- 
ticularly of  the  conglomerated  businesses  operated  by  the  five  prin- 
cipal packing  companies  is,  in  the  committee's  judgment,  not  large 
in  •peace  times  and  is  very  slight  indeed  under  present  war  ooncu-  ^ 
lions,  which  assure  an  almost  unlimited  market  for  most  of  the  prod- 
ucts and  which  reduce  credit  and  commercial  risks  to  a  minimum. 

In  this  connection  it  is  to  be  observed  that  any  rate  of  profit  fixed 
as  a  maximum  will  in  nearly  all  cases  be  actually  also  the  minimum, 
because  it  may  be  safely  assumed  that  under  present  conditions  the  1 
packers  will  be  able  to  earn  all  they  are  allowed. 

Unreasonableness  of  present  maximums. — The  present  maximum 
profits  allowed  licensees  with  sales  of  over  $100,000,000  are  unreason- 
ably high.   The  allowed  profit  of  9  per  cent  on  the  total  investment 
in  Class  I,  as  shown  by  the  companies'  own  reports,  means  a  profit  of  ^ 
from  about  13  to  17  per  cent  on  the  stockholder's  investment  in  that 
class;  the  allowed  profit  of  15  per  cent  in  Class  II  means  from  about 
24  to  34  per  cent  on  the  stockholder's  investment;  while  in  Class  III 
the  reports  of  the  packers  so  far  rendered,  indicate  a  profit  now  being 
earned  of  from  about  16  to  41  per  cent  on  the  stockholder's  invest-  ^ 
ment.  Taking  the  business  as  a  whole  it  appears  that  stockh<dder8  ( 
will  be  allowed  nearly  20  per  cent  on  their  own  investment  after  ^ 
paying  all  interest  charges.  Tliis  is  a  rato  which  ranges  from  two 
and  a  quarter  to  over  three  times  as  great  as  that  actually  earned  by  * 
them  in  the  prewar  years  of  1912,  1913,  and  1914,  and  very  nearly 
as  great  as  that  eanied  in  1917— liie  most  profitable  year  in  all  the 
{Midnr's  Ustoij.  < 


i 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  17 


Satimated  peroeatafe  of  allowed  raofit  oa  stock- 
bolders'  inTtftmcnt  (net  worth)  under  prwwnt 

XStm  I  

Class  n  

Class  m  :  

Total  business  , 

Allowed  profit  on  ctmunoii  stock  , 

Aetnal  praflt  on  net  worth: 

^•irar  average,  1912, 1913, 1914  

wm  average,  1915, 1916, 1917  , 

YmtmT^.......  


Armour. 

Svift. 

Morris. 

Wilson. 

Cudahy. 

Per  cent. 
15.6 
29.7 
» 15.7 
» 18.3 
30.9 

Per  cent. 
12.6 
23.8 
29.2 
18.2 
37.6 

Per  cent. 
15.1 
29.3 
32.2 
19.0 
S30S.5 

Per  cent. 
16.5 
33.9 
27.2 
19.3 
3L0 

Per  cent. 
14.9 
29.7 
41.4 
20.5 
51.ft 

6.2 
14.6 
1ft.  8 

8.3 
21.0 
36.7 

6,8 
13.5 
l&ft 

(») 

7.3 
14.1 
1&7 

^  F<x&ga  business  not  included. 

•  livttt  hM  not  o^italiied  M  limTt  ottMr  padcwt. 


*  No  figuioB  available. 


To  allow  the  five  great  packers  to  earn  a  rate  of  return  nearly  three 
times  as  great  as  they  enjoyed  without  noticeable  dissatisfaction  in 

times  of  peace  is  to  grant  a  maximum  which  is  unreasonable. 

Effect  on.  the  packers  and  on  their  competitors. — ^The  large  pack- 
ing companies  under  a  reasonable  profit  limitation  on  their  total 
business  naturally  will  not  lose  any  volume  of  tonnage  in  specialities 
to  unregulated  out&ide  competitors  charging  a  higher  price.  On  the 
other  hand,  in  the  judgment  of  the  committee,  such  outside  com- 
petitors will  not  be  unduly  injured  by  the  lower  price  that  the 
packers'  profit  limitation  may  cause  him  to  make.  So  far  as  these 
industries,  if  not  already  under  effective  Government  regulation,  are 
profiteering,  the  effect  of  limiting  the  profits  of  the  large  packers 
may  be  to  place  a  salutary  check  on  their  outside  competitors.  If, 
however,  there  is  sufficient  demand  for  the  products  of  the  industry, 
two  prices  may  rule  in  the  market,  the  unregulated  competitors  being 
able  to  sell  at  a  higher  price  than  the  packers  ask. 

The  small  packers,  whose  entire  basmess  is  in  most  cases  confined 
to  slaughtering^  and  meat  packing,  might  under  ordinary  conditions 
be  hard  put  to  it  to  retain  their  volume  of  trade  if  the  large  packers 
should  reduce  prices  on  the  meat  products  thai  are  the  only  business 
of  the  smaller  concerns.  In  these  times  ihb  demand  for  meats  is  so 
sreat  that  it  will,  no  doubt,  enable  the  smaller  packers  to  obtain  a 
higher  price  in  the  same  markets  in  which  the  Big  Five  might  sell 
at  a  lower  price.  The  commission  nevertheless  believes  that  to  in- 
sure the  position  of  the  small  packers,  they  should  be  allowed  a 
hi^;her  maximum  than  is  allowea  the  Big  Five. 

BEGOMMENOATIOHIBU 

The  committee  makes  the  following  specific  recommendations  based 
upon  a  consideration  of  the  various  factors  involved  : 

1.  That  no  class  of  business  engaged  in  by  a  licensee  be  exempted 
from  profit  limitation,  not  even  the  foreign  business  of  these  com- 
panies or  their  subsidiaries. 

^  2.  That  the  regulation  be  so  devised  that  the  earnings  from  domes- 
tic or  foi-eign  slaughtering  and  meat-packing  concerns  which  are  con- 
trolled by  individuals  who  are  large  stockholders  in  licensed  com- 
panies diall  be  considered  as  earnings  of  the  licensee  company,  and 
subject  to  the  profit  limitation  prescribed.   This  principle  sliould 

139888— S.  Dqc.  110,  GG-1  2 


► 


18     MAXIMUM  FBOFIT  LIMITATIOir  ON  MBAT-FAGKIHG  UlllUfRCIIT. 


also  be  applied  to  such  other  businesses  besides  meat  as  in  the  dia- 

cretion  of  the  Food  Administration  is  necessary  and  practicable. 

3.  That  the  rate  of  limitation,  at  least  for  the  present  year,  apply 
to  each  licensee's  business  as  a  whole  without  variation  in  rate  for  the 
different  classes  of  business. 

4.  That  gross  sales  as  a  basis  of  the  rate  be  a]>andoned  both  for 
the  five  largest  companies  and  for  the  companies  of  Division  II. 

6.  That  the  basis  of  the  rate  for  all  companies  regulated  be  the 
same,  namely,  the  net  worth  (capital  stock  and  surplus)  as  of  Novem- 
ber 1,1917.  ^.  ,  ^ 

6.  That  the  allowed  rates  of  profit  on  the  above  base  be  higher  for 
companies  in  Division  II  than  for  the  Big  Five,  and  that  in  both 
divisions  the  allowed  rates  be  on  a  sliding  scale  dependent  on  the 
volume,  in  weight,  of  animals  slaughtered.  This  provision  is  do- 
signed  to  stimulate  competition  and  to  give  an  incentive  fop  in- 
creased production  of  meats,  without  encouraging  the  large  packers 
to  further  expansion  in  lines  not  directly  connected  with  the  prime 
bnoness  of  slaughtering. 

7.  That  the  auowed  rates  of  profit  in  Division  I  (the  Big  Five)  be 
as  follows: 

Per  cent. 

(fl )  In  case  volume  in  weight  remains  as  in  fiscal  year  1917   7 

(6)  In  case  volume  in  weight  increases  up  to  10  per  Ottit   7| 

(c)  In  case  voltime  In  weight  increases  up  to  20  per  cent   8 

((f)  In  (  nso  volume  in  weight  increases  up  to  30  per  cent   8i 

(e)  In  case  volume  in  weight  incTeases  up  to  40  per  cent   0 

(/)  In  case  volume  in  weight  Increases  over  40  per  cent  0 

ig)  In  case  volume  in  weight  decreases  up  to  10  per  cent   6| 

(h)  In  case  volume  In  weight  decreases  up  to  20  per  cent   6 

(i)  In  case  volume  in  weight  decreases  up  to  30  per  cent   61 

(;)  In  case  volume  in  weight  decreases  up  to  40  per  cent   6 

( fc)  In  case  volume  in  weiglit  decreases  over  40  per  cent   6 

8.  That  the  allowed  rates  of  profit  in  Division  II  be  as  follows: 

Per  cent, 

(o)  In  case  volume  In  weight  remains  as  In  fiscal  year  1917—   9 

(b)  In  case  voliune  in  wei^t  increases  up  to  10  per  cent-,.__  9| 

(c)  In  case  volume  in  weight  Increases  up  to  20  per  cent  10 

(rf)  In  case  volume  in  weight  Increases  up  to  30  per  cent  . — ^ —  30J 

(c)  In  case  volume  in  weight  increases  up  to  40  per  cent  11 

(O  In  case  volume  In  weight  increases  over  40  per  cent  —  11 

It  is  recommended  in  Division  II  that  the  decreasing  sliding  scale 
shall  not  apply. 

9.  That  packers  with  annual  sales  in  the  year  1917  of  less  than 
$500,U00,  very  few  of  whom  are  engaged  in  interstate  commerce,  be 
exempted  for  the  present  from  the  Federal  regulation  of  profits. 

10.  That  meat  packers  not  engaged  in  the  slaughtering  Dusiness  be 
regulated  as  well  as  slaughterers. 

11.  That  special  rulings  allowing  increased  rates  of  profit  for  Di- 
vision II  packers  be  abolkhed. 

12.  That  any  profits  in  excess  of  the  prescribed  rates  be  either 
turned  over  to  the  Treasurer  of  the  United  States  or  applied  as  a 
credit  against  future  GU>yemment  purchases. 

In  subscribing  to  thib  report  your  undersigned  committee  desires  to 
say  that  Dr.  Francis  Walker,  chief  economist,  and  Mr.  Melville  C. 
WooslMr,  certified  public  aooountanti  chief  accountant,  aided  the  com- 


MAXIKUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  19 

mittee  with  their  counsel,  Dr.  Walker  sitting  with  it  in  the  drafting 
of  the  report  and  agreeing  with  it  substantially  except  as  to  the  use 
of  net  worth  as  a  base  and  as  to  the  rate.  Mr.  Perley  Morse,  certi- 
fied public  accountant;  Mr.  Percival  S.  Whipple  of  Perley  Morse  & 
Co.,  and  Messrs.  Samuel  W.  Tator  and  A.  S.  Kravitz  of  the  account- 
ing staff  of  the  commission,  have  participated  in  gathering  and  con- 
sidering the  material  and  in  drafting  the  report. 
Besp^ctfully  subndtted. 

Walter  Y.  DuRAND. 
Peklet  McmsE  &  Co. 
Stuart  Chask. 

Washington,  June 


EXHIBIT  IL 


tPeil^  XofW  it  Co.,  certified  public  accountants,  61  Broadway,  New  Tofk.  M^lMM 

1088,  1084.  Sector.    Cable  rnddien.  "  Standlt."] 

Case  No.  910. 

Jura  ao,  1918. 

Federal  Tkadx  Coxmissiok, 

Gbntlemen  :  In  accordance  with  your  instructions  we  ha^e  made 
an  investigation  of  the  profits  of  certain  meat  packers  affected  by 
the  rules  and  regulations  of  the  meat  division  of  the  United  States 
Food  Administration,  and  we  submit  herewith  in  xelalioii  thereto 
the  following  report: 

CUBflOKT  BZAXINATIOK  ON^T. 

The  time  allotted  to  us  for  the  completion  of  this  work  forbade 
our  going  into  details,  therefore  we  confined  our  activities  to  the 
conferences  with  the  commission's  accountants  at  Chicago  and  to 
an  examination  of  representatives  of  the  firms  of  Morris  &  Co., 
Swift  &  Co.  (Inc.),  Armour  &  Co.,  Wilson  &  Co.,  and  Cudahy 
Packing  Co.  The  testimony  of  these  concerns  should  be  considered 
as  part  of  this  report. 

PRESENT  RULES  AND  REGULATIONS  JUDGED  BY  PRINCIPLES  INVOLVED. 

The  business  conducted  by  the  various  packers  is  of  a  seasonable 
character  and  any  figures  computed  on  a  period  of  less  than  a  year 
are  of  questionable  value  as  a  guide  by  whidi  to  judge  a  year. 
Therefore,  we  l»ve  judged  the  present  rules  and  regnlatmns  by  the 
principles  involved  ratSnr  Uian  by  the  bootiraeping  lesollB. 

PBINCiniB  OF  SMMOATIKO  BUHmMBS  INTO  CLASgM. 

The  rules  and  regulations,  article  2,  section  1,  demand  that  the 
business  of  the  packers  be  divided  into  three  classes,  namely,  class  1, 
class  2,  and  class  3.  We  agree  with  the  principle  of  segregating 
the  business  into  its  component  parts,  but  we  do  not  agree  with 
the  present  segregation  and  feel  that  it  should  be  a  great  deal  finer. 
It  probably  should  extend  to  each  class  of  business  done.  We  be- 
lieve that  a  greater  rate  of  return  should  be  allowed  on  some 
classes  than  on  others,  especially  where  there  is  unregulated  com- 
petition; also  as  a  stimulus  for  the  further  utilization  of  by- 
products. 


ItAZnCUH  PBOFIT  UlOXATIOir  OZT  MBAX-PACKINO  INDUSTBT.  21 


mfPOKAST  METHOD  FOR  SBGUI«ATION. 

The  seffregaiion  called  for  in  the  present  rules  and  regulatimis 
or  any  ouer  segregation  does  not  seem  possible  at  the  present  time, 
due  to  the  lack  of  detailed  information  on  the  part  of  the  commis- 
sion's accountants,  which  would  justify  them  in  accepting  or  dis- 
allowing any  segregation  that  the  packers  make.  We  suggest  that 
this  inrormation  Im  obtained  immediately  and  the  classifications 
be  revised,  or  that  as  a  temporary  measure  the  business  be  regulated 
as  $,  whole. 

UKIFOBM  SmWM.  OF  AOOOUKTING. 

We  heartily  agree  with  the  establishment  of  a  uniform  system  of 
accounts  for  all  packers.  However,  we  appreciate  the  great  diffi- 
culties attached  to  the  development  of  it,  due  to  lack  of  satisfactory 
information  regarding  the  organizations  of  the  various  meat  pack- 
ers. A  more  aggressive  policy  of  research  and  investigation  should 
be  followed  in  gathering  the  information  necessary.  There  should 
also  be  an  intensive  study  made  of  the  present  methods  of  the  pack- 
ers in  order  to  determine  the  practical  methods  of  cost  finding  and 
oi  transferring  byproducts.  These  thin^  must  be  done  before  it 
is  possible  to  properly  segregate  the  busmess  and  arrive  at  a  true 
prmb  or  loss. 


Tttl  RATE  OF  RETURN  8HOUU>  BE  BASED  UPON  NET  WORTH. 

The  rate  of  return,  we  maintain,  should  be  based  upon  the  net 
worth  of  the  business,  that  is,  the  capital  stock  plus  the  surplus. 
The  net  worth  shows  the  stockholders'  investment  in  the  business, 
on  which  he  is  entitled  to  a  return,  and  any  other  method,  such  as 
that  laid  down  in  section  7,  making  special  provision  for  interest- 
bearing  obligations,  is  wrong,  such  method  serving  only  as  an  in- 
centive to  encourage  excess  borrowing.  For  the  purpose  of  this  regu- 
lation interest  should  be  included  as  an  expense  before  net  profit  is 
determined.  That  is  the  usual  method  of  judging  industrial  enter- 
prises. The  stockholder  is  entitled  to  a  return  on  his  investment, 
and  only  on  his  investment,  irrespective  of  the  amount  of  money 
involved  in  the  turnover  of  the  business.  If  the  business  works  on 
a  big  margin  of  borrowed  money,  that  money  is  only  incidental  to 
the  business  and  does  not  attach  any  additional  risk  to  the  individual 
stockholder,  who  is  liable  only  to  the  extent  of  his  investment. 

nr JU8IIGI  OF  OOMFUTING  THB  SATE  OF  RETURN  ON  THE  PRESENT  BA]> 

ANGE  SHEETS. 

Bel<m  tiM  fiffores  of  net  worth  that  are  eqiiitable  for  the  various 
oompauies  can  be  arrived  at,  there  must  be  an  investigation  of  the 
policies  pursued  by  them  in  the  past.  That  they  have  hem  different 
IS  known,  and  to  make  a  fixed  return  for  all  companies  on  their 

E resent  book  values  is  unjust.  For  instance,  land  and  buildings 
ave  been  appreciated  from  time  to  time  by  some  and  not  by  others. 
No  two  companies  have  used  the  same  methods  and  rates  of  depre- 
ciation on  identical  articlesi  s\fid  it  is  doubtful  wheito  there  is  any 


22     MAXIMUM  PROFIT  LIMITATION  ON  MEAT-FAOKINQ  INDX7STBY. 

fixed  policy  pertaining  to  renewals  and  replacements  or  repairs  and 
alterations.  The  packers  complain  rightly  of  these  inequalities  and 
they  will  have  to  be  adjusted  before  sueoeesful  profit  regulation  can 
be  had.  (See  testimony  of  Morris^  Co.,  pp.  7  to  28£Swift  A  Co. 
(Inc.),  pp.  185  to  140;  Armour  &  Co.,  pp.  221  to  226;  Wilson  A  Co., 
pp.  291  to  296;  Cadahy  Paddng  Co.,  pp.  880  to  884.) 

'  OOMFCTATION  OF  lOR  WOlCTB. 

In  computing  net  worth,  land  should  be  taken  at  cost,  plus  assess- 
ments for  improvements.  Buildings  and  machinery  should  be  taken 
at  cost,  less  depreciation,  which  depreciation  should  be  uniform  for 
identical  articles  in  all  concerns.  Inventories  should  be  taken  at 
cost.  There  should  be  set  aside  from  surplus  a  sufficient  reserve  for 
the  increased  cost  of  replacing  of  fixed  assets  over  the  original  cost, 
and  this  reserve  should  be  increased  from  year  to  year  by  a  charge 
to  operations.  In  the  proposed  readjustment  of  the  present  net 
worth  this  reserve  for  replacements  will  undoubtedly  reduce  the 
surplus  of  tlie  companies  to  less  than  the  present  figure.  This  we 
consider  equitable  for  the  reason  that  this  money  should  be  tied  up 
to  take  care  of  future  replacements  and  should  not  be  in  a  position 
where  it  can  be  paid  out  as  dividends.  Such  procedure  will  tend 
to  strengthen  the  financial  position  of  the  packing  industries  by  pro- 
viding for  their  future  needs.  The  packers  claim  that  they  are  com- 
pelled to  build  up  bi^  surpluses  to  take  care  of  replacements,  and 
if  that  is  the  case  such  surplus  should  be  in  a  position  whero  it  can 
not  be  used  for  any  purpose  other  tiian  that  for  which  it  is  intended. 
(See  testimony  oi  l^rris  it  Co.,  Swift  A  Ca,  Armour  A  Co.,  ap- 
pended hereto.) 

TRUE  COST  AND  TBUE  PBOITT. 

Inventories  should  be  taken  at  cost,  or  if  the  market  is  below  cost, 
ft  reserve  should  be  set  up  to  cover  the  difference.  The  present  method 
followed  by  the  packers  and  authorized  by  article  2,  section  8  of  the 
rules  and  regulations,  not  only  results  m  anticipated  profits,  but 
also  allows  a  return  on  such  anticipated  profits.  If  this  sug^ted 
change  were  made  it  would  not  only  cut  down  the  return  allowed  to 
the  packers,  but  it  would  offset  to  a  certain  extent  the  huge  losses 
that  they  anticipate  due  to  a  slump  in  the  market.  (See  testimony 
of  Swift  &  Co.  (Inc.)  and  Armour  &  Co.,  appended  hereto.)  For 
this  reason,  as  well  as  for  the  purpose  of  transferring  between 
departments,  a  practical  method  of  cost  finding  should  be  deter- 
mined upon,  which  should  be  uniform  for  all  companies.  The  packers 
are  skeptical  about  possibility  of  determining  costs.  We  have  never 
seen  a  business  man  who  did  not  say,  until^  it  had  been  done,  that 
his  business  was  different  from  anv  other  in  the  wotld;  that  cost 
finding  for  him  was  impossible;  witn  any  other  business  it  might  be 
possible,  but  with  his,  it  could  not  be  done.  In  the  most  ccMnpflcated 
bi»»nes8es  successful  cost  sfystems  have  been  installed,  and  we  feel  that 
the  packing  bushiess  is  no  exception  to  the  rule.  Several  European 
Governments  have  applied  them  with  success,  and  there  is  no  reason 
why  they  can  not  be  duplicated  in  the  United  States.  True  cost  is 
the  correct  hidB  for  the  transfer^ooe  of  by-produots,  and  lor  tiie 


iCAxnnTM  nam  umitation  ok  hbat-packiko  iwdustby.  23 


Wuation  of  inventories.  It  is,  therefore,  the  criterion  of  ime  profits. 
True  profits  will  never  be  known  until  true  cost  is  known.  The 
packers  acknowledge  the  difficulty  of  ascertaininfi^  the  market  at 
times  and  the  only  way  to  satisfactorily  overcome  this,  from  the 
Government's  standpoint,  is  to  set  a  uniform  rule  for  all  packers  to 
follow.  Any  other  principle  leaves  open  a  chance  to  juggle  profits. 

COST-FINOING  METHODS. 

If  test  runs  were  made  of  a  number  of  animals  of  one  ^ade  and  the 
perc^tage  by  weight  of  the  various  parts  determined,  the  ratio  of 
the  cost  of  the  individual  parts  to  the  total  cost  of  the  animal  would 
be^  the  same  as  the  market  price  of  those  parts  is  to  the  market 
price  of  the  whole.  This  sch^e  is  widely  used  where  crude  materials 
are  broken  up  into  various  parts,  notably  in  the  petroleum  industry. 

SUfiSIOIAHY  COMPANIES. 

In  determining  the  profits  of  any  organization  so  complex  as  the 
packing  industry,  it  is  essential  that  not  only  the  fundamental  prin- 
ciples of  accounting  heretofore  outlined  be  carried  out,  but  also 
the  more  intricate  combinations.  Books  and  records  of  subsidiary 
companies  must  be  systematized  so  that  they  can  be  readily  consoli- 
dated with  those  of  the  parent  company,  and  interocmipany  trans- 
actions and  profits  eliminated.  The  accounting  method  employed  in 
the  United  States  at  the  present  time  for  the  control  of  subsidiary 
companies  is  the  greatest  weakness  in  the  science.  It  is  proverbially, 
either  through  ignorance  or  through  design,  the  seat  of  delusion. 
We  cite  the  case  of  an  organization  that  recently  came  to  our  notice 
where  a  proper  consolidation  of  accounts  of  subsidiary  companies 
very  nearly  doubled  the  stated  profits  of  the  organization  in  question. 
We  hola  that  in  the  regulation  of  any  industry  the  regulating  body 
should  be  in  a  position  to  compel  the  inclusion  of  not  only  the  100  per 
cent  controlled  corporations,  but  also  any  interest  less  than  this 
amount  which  has  direct  bearing  on  the  industry  under  regulation. 
In  this  respect,  sections  5  and  6  of  the  present  rules  and  regulations 
should  be  liberally  interpreted  and  rigidly  enforced. 

QENEHAIi. 

Our  examination  of  the  packers  developed  the  fact  that  they  are 
satisfied  with  the  present  regulations,  with  the  exception  of  some 
changes  of  classification.  (See  testimony.)  They  claim  to  be  able 
to  segregate  their  business  to  conform  with  the  requirements  of  the 
regulation.  We  agree  that  it  can  be  done,  but  we  know  that  it  will 
take  considerable  time  and  work  to  get  it  right.  We  believe  that  in 
the  interest  of  all  parties  it  should  be  done,  but  unless  the  Govern- 
ment intends  to  furnish  the  necessary  facilities  to  see  that  it  is  done 
right,  the  best  plan,  we  believe,  would  be  to  regulate  the  business  as 
a  whole.  We  do  not  favor  the  present  method  of  an  unregulated 
dass,  but  we  believe  that  all  classes  should  be  regulated.  This  does 
npt  necessarily  mean  that  the  profit  on  certain  articles  should  be 
fixed,  but  th^  right  to  regulate  should  never  be  relinquished  in  the 
interest  of  those  products  which  are  regulated.  If  some  portions 


24     MAXIfiCtJM  PROFIT  UMITATION  ON  MEAT-PACKING  INDUSTK^. 


are  regulated  and  othetB  are  not,  it  may  result  disastrously  for  the 
r^ulated  articles  and  for  competitors. 

The  packing  business  is  not  menaced  by  extraordinary  hazards. 
We  ccmsider  it  among  the  best  for  stability.  This  is  borne  out  by 
the  enormous  capital  built  up  out  of  earnings  by  the  various  pack- 
ers. The  new  issue  of  bonds  of  Armour  &  Co.  ($60,000,000)  was 
taken  up  over-night  and  oversubscribed  26  per  cent 

If  the  figures  submitted  by  the  commission's  accountants  are 
correct,  showing  the  estimated  earnings  on  net  worth  in  1918  to  be 
in  the  case  of  Armour  &  Co.,  18.3  per  cent;  Swift  &  Co.,  18.2  per 
cent;  Morris  &  Co.,  18.9  per  cent;  Wilson  &  Co.,  19.3  per  cent; 
Cudahy  Packing  Co.,  20.5  per  cent;  we  say  that  they  are  making 
too  much  money.  If,  after  providing  for  the  rephicement  of  fixed 
investment  as  herein  outlined,  a  return  of  10  per  cent  were  allowed 
on  the  entire  investment,  it  would  be  a  generous  provision. 

Respectfully  submitted. 

Perley  Morse  &  Co., 
Certified  Public  Accauntants, 


EXHIBIT  IIL 


JuinB  18,  1918. 

Regulation  of  Packers'  PnoFrrs. 

The  report  of  the  President's  meat  committee,  dated  May  27,  1918, 

specifies  as  follows: 

In  the  meantime  the  Federal  Trade  Commission  should  report  upon  the 
reasonableness  of  these  maximums.  If  found  reasonable,  they  should  continut' 
In  effect  until  further  notice.  If  found  unreasonable,  such  maximum  should 
be  made  effective  as  facts  warranted. 

Strictly  interpreted,  the  above  simply  calls  for  an  expression  of 
opinion  by  the  Federal  Trade  Commission  of  the  reasonableness  of 
the  maximum  profits  now  allowed  the  packers  by  the  Food  Admin  - 
istration regulations.  No  criticism  is  asked  covering  the  philosophy 
of  tbe  regulation,  or  the  assumptions  upon  which  it  is  bas^.  In 
the  opinion  of  the  undersigned,  however,  in  addition  to  answering 
the  concrete  question  as  to  the  reasonablene^  of  maximums,  the 
Federal  Trade  Commission  should  comment  upon  the  present  regu- 
lation from  the  standpoint  of  policy,  and  ^ould  also  be  prepared  to 
suggest  an  improved  form  of  regulation. 

In  preparing  the  following  report  we  have  followed  this  general 
procedure,  namely :  The  first  section  applies  to  the  reasonableness  of 
maximums ;  the  second  section  criticizes  the  present  regulations  from 
a  standpoint  other  than  that  of  the  rates  allowed;  the  third  section 
outlines  a  new  form  of  regulation. 

SECTION  1.  BfiASONABI^ENESS  OF  MAXIKUM8. 

The  present  maximum  profits  allowed  licensees  with  sales  of  over 
$100,000,000  are,  in  our  opinion,  unreasonable.  An  allowed  profit 
of  9  per  cent  on  the  total  investment  in  Class  I  (meat  business)  allows 
the  several  packers  to  make  from  13  to  17  per  cent  on  the  portion  of 
their  own  money  invested  in  that  business  and  an  allow^ed  profit  of  15 
per  cent  on  the  total  investment  in  Class  II  (specialty  products) 
nets  the  packers  froni  24  to  34  per  cent  on  the  proportion  of  their 
own  money  invested  in  that  class.  The  present  rate  of  earnings  in 
Class  ni  (unregulated  section)  shows  the  several  packers  to  be 
making  from  16  to  41  per  cent  on  their  own  money  invested  in  that 
class.  Taking  the  whole  business  all  together,  it  appears  that  the 
present  profits  allowable  to  stockholders  in  the  several  companies 
nets  them  from  18  to  20  per  cent  on  their  entire  equity  in  the  busi- 
ness, namely,  an  average  of  about  19  per  cent  on  the  capital  stock 
and  BOiplus  together. 


26     MAXIMUM  PBOFIT  LIMITATION  OH  MBAT-PAOKHrO  IHDTOIBT. 

Fercentage9  of  allowed  profit  on  imI  worttL 


CKrtlimted  for  year  ending  Nov.  1, 1918.] 


AfBumr. 

Swift. 

MORis. 

Wilson. 

Cudahy. 

Per  cent. 
15.6 
29.7 
»16.7 

Percent. 
12.6 
23.8 
2912 

Ptrcent. 
15.1 
29.3 
tS.2 

Per  cerU. 
16.6 
tS.9 
27.2 

Percent. 
14.9 
29.7 
41.4 

Total  business   . 

U8.S 

U.2 

lt.t 

*  Vtonisa  lNisin«ss  not  included. 


The  above  table  is  a  portion  of  Exhibit  1  (appended  herewith), 
S^T.  ^-.  .  percentages,  as  explained  in  detail  on 

i^.xhibit  1,  can  only  be  estimates  in  view  of  the  fwct  that  thev  are 
based  on  a  year  which  is  not  yet  completed,  they  aro  the  best  esti- 
mates that  can  be  compiled,  and  the  only  guide  which  we  have  to 
follow  at  this  time. 

The  earnings,  as  estimated,  provide  a  rate  of  return  on  the 
capital  stock  of  the  several  companies,  as  follows: 

Percentage  of  allowed  profit. 


Armour. 

Swift. 

Morris. 

Wils.  n. 

Cudahy. 

SiSiSSiSS*^  

Percent. 

sa9 

8a9 

Percent. 

37.6 
37.6 

Percent. 

SOj.  5 
305.5 

Per  cent. 
22.7 
31.0 

Per  cent. 
32  3 
51.6 

The  enormous  rate  in  the  case  of  Morris  comes  about  because  that 
coiiipany  has  not  seen  fit  to  capitalize  its  surplus  to  the  same  extent 
as  the  other  companies.  If  it  had  followed  the  practice  of  the  other 
companies,  its  rate  of  return  on  its  stock  would  probably  be  in  line, 
namely,  in  the  neighborhood  of  40  per  cent. 

The  above  estimates  have  been  conservatively  made,  and  while 
tiiey  can  not  be  exact,  it  is  probable  that  any  differences  that  may 
develop  wiU  be  on  the  side  of  greater  allowances  than  those  quoted, 
in  our  opmion,  20  per  cent  on  the  capital  and  surplus  of  an  estab- 
lished company-— particularly  where  such  enormous  surplus  has  been 
awumulated— is,  m  the  case  of  the  five  great  packers,  an  unreason- 
able return  m  war  tuneor  m  any  other  time,  in  view  of  the  fact  that 
utmty  *         necessity  of  life  and  in  the  nature  of  a  public 

Our  contention  that  the  present  allowed  profits  of  the  packers 
are  unreasonable  is  borne  out  by  a  survey  of  the  earnings  of  other 
large  industrial  corporations  in  the  United  Stetes.  The  following 
statistics  were  collected  from  Poor's  Manual.  We  wish  to  pomt  out 
that  the  hgures  were  hastily  gathered  and  that  no  attempt  has  been 
made  to  analyze  the  balance  sheets  and  the  profit-and-loss  statements 
from  which  they  were  taken ;  indeed,  no  real  analysis  could  be  made 
as  the  hgures  are  not  printed  in  sufficient  detail.  We  limited  the 
number  of  companies  to  such  as  were  in  some  degree  comparable 
from  point  of  size  with  the  five  large  packers.  (For  the  n^a«  of 
the  specific  companies  see  sub-Exhibit  II.)  ^ 


MAXIMUM  PBOf  IT  LIMIIATION  ON  MSAX-PACKING  INDUSIBY.  27 

Average  profit  on  net  worth. 


1917 

1916 

1915 

1914 

1913 

Percent. 
11 

Percent. 
9 

Percent. 
7 

Percent. 
6 

Percent. 
5 

9 

15 

14 

6 

15 

10 

13 

9 

6 

13 

8 

7 

7 

9 

22 

29 

8 

3 

9 

17 

18 

10 

7 

3 

Hides  

15 

17 

8 

6 

6 

15 

10 

10 

11 

In  normal  times — 1913, 1914, 1915 — the  above  industries  were  earn- 
ing less  than  10  per  cent  on  their  net  worth.  In  the  war  years  of 
1916  and  1917,  steel  is  the  only  group  which  has  earned  better  than 
20  per  cent  on  its  net  worth — ^the  estimated  allowed  rate  of  the  pack- 
ers under  the  regulation. 

Not  only  is  the  rate  which  the  packers  are  now  allowed  excessive 
as  compared  with  standard  business  practice,  but  it  is  excessive  as 
compared  with  the  packers'  own  earnings  in  prior  years.  With  the 
exception  of  Swift  &  Co.,  the  packers  are  to  be  allowed  to  earn  as 
mucn  or  more  under  the  regulation  as  they  did  in  1917,  the  most 
profitable  year  in  all  their  history.  The  following  table  shows  the 
rates  of  profit  earned  on  tlie  net  worth  of  the  who£  business  for  the 
past  six  years:  ' 

Ratet  of  profit. 


1912  

1913  

1914  

1915  

1916  

1917  

1918  (estimated)  

Average,  war,  1915, 1916, 1917  

ATentft,  prewar,  1912, 1918, 1914. . 


Aimoor.. 

Morris. 

Wilaon. 

Codahy. 

Percent. 

Percent. 

Percent. 

Percent. 

Bercent. 

5.7 

8.4 

6.6 

6.7 

5.9 

8.3 

6.6 

7.6 

7.0 

8.2 

7.1 

7.8 

9.4 

17.2 

7.1 

4.0 

16.6 

17.1 

13.3 

19.3 

16.5 

»  16.8 

26.7 

18.6 

23.8 

IS.  7 

118.3 

18.2 

18.9 

19.3 

20.5 

14.6 

2L0 

13.5 

14.1 

6.3 

6.8 

7.2 

i  Foreign  business  not  included. 

It  will  be  noted  that  Armour  is  to  be  allowed  about  three  times 
their  average  prewar  profit  rate;  Swift  over  twice;  Morris  nearljr 
three  times :  Cudahy  tnree  times.  With  the  exception  of  Swiftr  all 
ar&  to.be  allowed  a  greater  rate  of  profit  than  tney  earned  in  the 
tiiree  profitable  war  years— 1915,  1916,  and  1917.  To  allow  the 
stockholders  of  a  given  company  three  times  the  rate  of  earnings 
enjoyed  on  the  average  in  times  of  peace  is  to  allow  a  maximum 
which  is  not  only  unreasonable,  but,  from  the  standpoint  of  the 
general  public  who  believe  that  the  packers  are  really  being  regu- 
lated, an  outra^^us  imposition  upon  their  trust  in  the  Government. 

The  reason  why  these  profits  do  not  seem  unreasonable  to  the 
packers  themselves  is  because  the  big  packers  have,  from  time 
ininiemorial,  followed  the  policy  of  extending  their  plants  out  of 
earnings,  rather  than  in  securing  new  capital.  This  practice  has 
become  such  a  part  of  their  business  thinking  that  it  has  taken  on 
all  the  sanction  of  a  moral  philosophy.   To  limit  earnings  below 


28     MAXIMUM  PBOFIT  UMITATIOK  OIT  MSAT-PAOKHro  IKDI7BIBT. 


the  point  where  a  surplus  remains  to  extend  construction  to  any 
point  they  desire,  seems  to  them  wrong  and  unreasonable. 

They  do  not  think  in  the  terms  of  ordinary  financial  procedure  at 
all.  They  have  discovered  a  way  of  making  the  public  pay  for  their 
enlarging  investments,  and  they  are  sincerely  shocked  wlien  it  is 
proposed  to  hmit  them  in  that  vested  right.  This  unique  philosophy 
was  apparent  all  through  the  recent  hearings  conducted  by  Mr. 
Morse,  but  it  is  difficult  to  see  why  it  should  be  the  province  of  the 
Goyernment  to  protect  their,  highly  moral,  but  highly  unusual,  sen- 
timents in  this  rejgard.  . 

We  cimclade  this  section  as  we  began  it,  namely,  that  the  maxi- 
mum xat^  are  unreaswiable,  in  fact  dangerously  unreasonable,  and 
that  if  it  18  found  expedient  to  continue  the  present  form  of  regula- 
tion, pending  a  more  intensive  study  of  its  effects,  the  rates  of  profit 
allowed  upon  the  investment  in  classes  1  and  2  should  be  lessened. 

fflBCnON  n.    OBNBRAL  SUKVBT  OP  THE  PRESENT  BBOUlJkTIONS  APAET 

ISOM  MAXIMITM  RATES. 

The  present  regulations  provide  for  2^  per  cent  profit  restriction 
on  the  meat  product  sales  of  all  American  packers,  and,  in  the  case 
of  the  five  large  packers,  a  further  restriction  of  9  per  cent  on  the 
total  investment  in  the  meat  business  (class  1),  and  15  per  cent  on 
the  total  investment  in  certain  specialty  businesses,  the  bulk  of 
whose  raw  material  is  derived  from  slaughtered  animals  (class  2). 
The  remainder  of  the  packer's  business  (class  3)  is  unregulated  as 
to  profit. 

The  appended  Exhibit  3  shows  in  detail  the  various  departments 
now  adjudged  to  be  in  the  several  classes.  As  we  understand  it  the 
theory  of  the  present  regulations  was— 

(1)  To  prevent  profiteering. 

(2)  To  simulate  production. 

(3)  To  limit  prices. 

As  a  result  of  approximately  mx  months'  experience,  it  appears 
mac — 

(1)  Profiteering,  as  we  have  already  pointed  out,  has  not  been 

prevented. 

(2)  Production  has  increased — though  whether  it  would  have 
happened  had  the  regulation  not  been  in  effect  is  problematicaL 

(3)  The  effect  on  prices  is  apparently  nil. 

If,  following  the  recommendation  in  the  foregoing  section,  maxi- 
mum rates  are  now  reduced  to  a  point  where  profiteering  is  elimi-  * 
nated,  only  allowing  reasonable  profits  by  classes,  certain  grave  dif- 
ficulties would  still  appear  in  the  present  form  of  the  regulations. 

It  has  been  the  policy  of  the  Food  Administration  to  accept  the 
figures  that  the  packers  have  prepared  with  verv  little  intensive 
audit.  While  the  accounting  staff  of  the  meat  division  has  done  ^ 
its  best  to  study  and  compare  the  figures  rendered,  the  staff  has  not 
been  large  enough  to  permit  of  any  thoroughgoing  examination  of 
the  various  figures,  and  the  bases  upon  which  they  were  prepared. 
Sufficient  anafysis  has  been  made,  however,  to  demonstrate  the  fact 
that  if  the  present  scheme  of  regulation,  by  classes,  is  to  be  indefi- 
n^ty  contmued,  a  great  number  of  ccmiplex  factors  must  be  in-  a' 

* 


• 


MAXnPTM  PROFIT  UIOTAXIOH  OH  MBAaf-PACKITO  IKDUSTBY.  29 

tensively  studied  in  order  that  the  Government  and  the  public  may 
be  assured  that  the  packers'  reports  are  accurately  compiled. 

The  foremost  difficulty  that  presents  itself  is  the  division  of  the 
total  business  into  classes.   This  division  is  not  and  can  not  be  a 

natural  one  from  the  accounting  point  of  view.  It  is  an  arbitrary 
apportionment  as  to  (1)  investment,  (2)  transfer  prices,  (3)  distri- 
bution of  overhead  expenses,  (4)  disposition  of  branch-house  results. 
The  packers  unite  in  maintaining  that  the  distinction,  by  classes, 
can  be  made  and  made  accurately,  but  a  relentless  examination  of 
the  facts  shows  such  a  variety  of  variations,  any  one  of  which  may 
seriously  vitiate  final  results,  as  to  render  a  scheme  of  regulation 
based  on  classes  very  questionable.  We  will  consider  each  of  the 
variables  enumerated  above  in  turn: 

DIFPIOUMT  OP  AFPCnrnOKINO  INVESTMENT. 

The  packers  now  estimate  the  investment  in  each  department  of 
their  business  and  by  aggregating  the  departmental  investments  by 
classes,  the  present  apportionments  for  the  Food  Administration 
returns  are  arrived  at.  Investment  includes  both  fixed  and  net  float- 
ing assets.  Fixed  assets  may  be  readily  segregated  where  the  lands, 
buildings,  and  equipment  show  a  clean-cut  separation  by  classes. 
Thus,  if  a  given  plant  produces  nothing  but  class  2  products,  its 
investment  as  a  part  of  class  2  can  be  accurately  determined.  When, 
however,  a  given  plant  located  on  a  single  tract  of  land  produces 
goods  that  tall  into  two  or  three  classes,  the  question  of  ai>portion- 
ment  beonnes  one  of  estimate,  and  Geuaes  to  be  one  of  strict  accu- 
racy. The  majority  of  the  standard  local  packing  plants  com»  under 
this  head.  In  the  same  group  of  buildings,  sometimes  imder  tlie 
same  roof,  we  find  dressed  meats  (class  1),  rendering  (class  2),  and 
dairy  products  (class  3)  being  simultaneously  manufactured—or 
an  endless  series  of  other  class  variations.  To  apportion  the  exact 
sAiare  of  fixed  investment  that  each  department  i^ould  bear  is  ob- 
viously an  impossible  task.  Estimates  may  be  made,  but  only  an 
exhaustive  examination  on  the  part  of  the  Government — entailing 
the  work  of  appraisers,  accoimtants,  and  engineers — can  certify  to 
the  approximate  correctness  of  the  estimates. 

Again,  so-called  "  nonoperating  departments "  such  as  power 
house,  tin  shop,  box  factory,  storehouse,  etc.,  departments  which  are 
supplying  operating  departments  in  all  three  classes,  present  a  pe- 
culiarly difficult  problem  of  apportionment.  Only  crude  estimates 
based  on  service  rendered  or  on  supplies  furnished  or  on  final  sales 
can  be  applied.  The  packers  themselves  do  not  now  apportion  this 
kind  of  investment  uniformly.  It  follows  logically  that  if  one 
method  is  right,  the  other  methods  must  be  wrong  to  a  greater  oi 
lesser  d^ree. 

The  (^termination  of  fixed  investment,  however,  is  relatively 
simple  when  contrasted  with  the  apportionment  of  floating  assets. 
The  books  are  not  kept  and  it  would  not  be  practicable  to  keep  them 
to  show  receivables  by  departments.  And,  accordingly,  an  exceed- 
ingly rough  estimate  must  be  made  based  on  average  credit  tem^. 
Thus,  if  a  given  department's  sales  in  a  given  period  are  known 
and  the  average  credit  allowed  on  these  goods  is  known,  an  esti- 
mate of  outstanding  accounts  receivable  can  be  calodated,  other 


30      MAXIMUM  PROFIT  JLIMITATION  ON  MfiAT-PAOKIKG  IHDTOTBT. 

things  beinjr  equal.  Other  things  seldom  are  equal,  however,  and 
the  essential  hit-or-miss  character  of  this  method  needs  no  comment.' 
Uow  shail  cash  be  apportioned  by  departments?  How  shall  de- 
frntd  chaJTges— interest,  insurance,  taxes?  How  shall  accounts 
payable  f  Inese  questions  defy  accurate  answer. 
It  IS  undouMedly  true  that  an  exhaustive  study  of  packers'  meth- 

^IS^ffi'Sf'^-Tf*^^^^  ^^^^^1  ^  standard  method 

whicli  fflight  be  applied  by  the  Government,  and  total  investments 
by  classes  be  accuHrakted  thereon,  giving  figures  which  would  to 
aU  intents  and  purposes  insure  tibe  Government  of  a  rough  equality 
upon  which  to  base  Its  rates  of  profit.  It  may  be  that  such  a  method 
IS  even  now  m  existence  m  the  procedure  of  at  least  one  company. 
Certamly  It  can  not  be  in  existence  in  all  companies  because  of  the 
variety  of  methods  used,  and  certainly  only  a  prolonged  stody  bv 

of  %al  T^vdit^^^^       "^"^  """^  ^  ^  substaSiial  acciunu^ 

DIFFICULTY  OF  DETEKMINING  TRANSFER  PRICES. 

^  obtain  profits  by  classes,  credits  must  be  made  for 
the  shipment  of  finished  and  partiaUy  finished  products  from  one 
cla^  to  another.  The  present  practice  of  the  packers  in  this  con- 
nection IS  to  value  products  so  tmnsferred  at  so-called  "market 
prices.  Estimates  of  what  constitute  market  prices  vary,  however, 
as  do  the  extent  of  deductions  from  market  to  cover  further  proc- 
essing expenses.  On  other  poducts,  such  as  glue  stock,  blood, 
hair  etc.,  tliere  is  no  ascertainable  market  price,  and  the  translfer 
credit  has  to  be  an  arbitrary  figure.  There  is  but  little  uniformity 
in  the  present  methods  of  valuing  transfers  now  in  vogue  among  tlie 
Big  Five,  and  it  follows  that  profite  or  losses  by  clasms  are.  to  that 
extent,  distorted  and  vitiated.  ^  ^ 

MFncui/nr  of  apportioning  overhead  expenses. 

Each  of  the  five  large  packers  employs  at  present  independent 
methods  of  apportioning  general  administrative  and  plant  over- 
head expenses  to  his  various  departments.  Exhibit  4,  appended, 
shows  the  variety  of  methods  employed.  Here,  as  in  the  base  oi 
investment,  we  are  confronted  with  the  fact  that  if  one  method  is 
right  the  others  must  be  wrong,  and  that  profits  and  losses  bv 
classes  are  necessarily  inaccurate.  Only  an  intensive  study  of  the 
methods  of  apportioning  overhead  expenses  can  satisfy  the  Govern- 
ment that  the  division  by  classes  is  an  accurate  compilation 

Again,  the  following  table  shows  for  the  five  companies  the  per- 
centage of  administraiiye  expense  charged  to  class  1  against  charges 
to  classes  2  and  3  combined.  From  this  percentage,  as  compared 
with  sales  or  investment,  it  is  clear  that  class  1  bears  a  very  high 
proportion  of  the  administrative  burden.  Each  of  the  five  com- 
pames  shows  a  proportionately  higher  total  of  administrative  ex- 
pense than  the  proportion  of  total  sales  or  of  total  investment 
obtoming  m  the  meat  business  (class  1).  The  packers  have  often 
^rmed  that  m  recent  years  their  activities  have  been  primarily 
directed  to  acquiring  an  interest  in  food  specialties  other  than  meat. 
Accordingly,  it  is  probable  that  the  percente|[e  of  total  administra- 


MAZIKUM  FBOFIT  UlCmnOK  ON  XBAT^FAOKIHG  INDUSTRY.  31 

tive  expense  which  the  meat  business  bears  is  considerably  in  ex- 
cess of  ite  true  proportion,  particularly  in  view  of  the  met  that 
this  business  has  been  long  established  and  is  more  automatic  in 
ite  Deration  than  newer  activities,  which  require  continual  expert 
oversight.  We  have  reason,  therefore,  to  question  gravely  the  ac- 
curacy of  the  present  methods  of  distributing  overhead  expenses  by 
classes. 

Tabls  0,^N<nember  and  December  t9t7. 


Armour. 

Swtft. 

Monis. 

WUmh. 

Moby. 

Percentage  of  administrative  ezpenre: 
Class  1  

Total  

FBraantage  of  atles: 

Piroentage  of  iiiTestnieiit: 

Per  cent. 
82.  57 
17.  43 

Per  cent. 
77.31 
22.69 

Per  cent. 
86.33 
13.67 

Per  cent. 
90.33 
9.07 

Per  cent. 
89.93 
10.07 

100.00 

100.00 

100.00 

100  00 

100.00 

76.00 
24.00 

56  80 
43.20 

82.50 
17.50 

77.60 
22.40 

75.70 
24. 30 

100.00 

100.00 

100.00 

100.00 

100.00 

6S.60 
34.50 

00.  so 

39.50 

74.80 

25.20 

77.70 

22. 30 

75. 00 
24. 40 

UQlOO 

100.00 

moo 

moo 

100.00 

DIFFICULTY  OF  APPORTIONING  BRANCH-HOUSE  RESULTS. 

A  notinal  branch  house  sells  the  product  of  all  three  classes. 
Sales  by  classes  may  be  readily  segregated,  but  what  shall  we  say  of 
freight  charges  from  the  i^ant  to  the  branch  house,  and  of  branch- 
house  selling  expenses?  The  same  car  may  carrv  beef,  butterine, 
and  canned  fish,  and  the  same  manager,  clerks,  coolers,  general  store 
expenses,  cooperate  to  merchandise  these  products.  An  arbitrary 
apportionment  based  on  money  sales,  or  Weights,  or  whatnot,  can 
be  made  and  is  made.  But  how  far  can  we  accept  it  as  accurate? 
Here  again  only  a  long  study  of  the  branch-house  situation  can 
insure  the  Government  against  inaccurate  results. 

Finally,  it  appears  that  it  is  perfectly  possible  under  the  class 
system  or  regulation  for  the  packers  to  divert  profits  from  <me 
class  to  another  without  serious  chance  of  detection  as  matters  now 
stand.  It  is  also  possible  for  them  to  shift  their  investments  by 
classes,  thus  affecting  their  allowed  rates  of  profit  without  tiie  Gov- 
ernment's knowledge.  To  maintain  that  a  handful  of  men  can  pre- 
vent either  of  these  proceedings  is,  from  the  accounting  point  of 
view,  ridiculous.  To  watch  an  annual  business  of  some  three  billions 
of  dollars,  to  check  the  computations  of  hundreds  of  plants,  thou- 
sands of  departments,  and  tens  of  thousands  of  bookkeepers,  re- 
quires more  than  a  handful  of  men. 

The  Food  Administration  has  gone  on  the  assumption  that  the 
packers  were  honest.  The  reports  now  being  made  to  the  Food 
Administration  show  an  astonishing  shrinkage  of  earnings  in  classes 
1  and  2,  where  the  regulation  is  in  effect ;  and  large  profits  in  class  3, 
which  is  unregulatedT  No  matter  how  honest  the  packers,  this  is  a 
condition  which  merits  immediate  and  exhaustive  attention. 


S2     IIAZHEVM  FBOilT  LIMITATiOK  OH  MMAMAXJSINQ  mVtOM. 


Swift. 

Morris. 

Wilson. 

Ondahy. 

Percentage  of  investment: 

Per  cent. 
60 
18 
» 

Ptreent. 

n 

12 
12 

Percent, 
78 
6 
16 

» 

18 

m 

58 

100 

41 
19 
40 

100 

69 
4 
27 

100 

It 
6 

n 

Peroenta^e  of  profit  earned: 

43 

100 

100 

IM 

m 

AXMOUR  FIGURES  NOT  COMPARABLE. 

On  the  whole,  it  must  be  concluded  that  the  regulation  of  any- 
thing less  than  uie  business  as  a  whx^  is  highly  unaMasfactory.  As 
matters  now  stand,  the  public  can  not  be  assured  that  it  is  being 
protected  from  unreasonable  profiteering.  The  alternative  to  regu- 
lating the  business  as  a  whole  is  to  throw  a  sufficient  staff  of  ac- 
countants, engineers,  and  appraisers  into  the  regulation  work  to 
finally  solve  the  various  problems  of  apportionment  already  referred 
to.  Fifty  men  in  six  months'  time  could  hardly  conclude  an  initial 
report  upon  the  problem. 

In  addition  to  the  weakness  of  the  class  distinctions,  a  further 
weakness  is  found  in  the  present  regulation,  due  to  the  fact  that 
the  packers  are  allowed  to  make  profits  on  borrowed  money.  This 
is  contrary  to  the  usual  economic  interpretation  of  profit  taking  and 
if  any  other  feasible  method  of  stimulating  production  can  be 
found,  it  should  be  adopted,  and  thereby  eliminate  the  present 
rather  dangenous  doctrine  tiiat  the  Government  sanctions. 

A  third  weakness  in  the  present  ref^ulation  is  the  &ct  that  the 
valuations  of  fixed  assets  now  appearing  upon  the  packers'  books 
are  on  different  bases  as  between  companies.  This  is  not  only  very 
unsatisfactory  from  the  point  of  view  of  the  Government  but  works 
ocmsiderable  injustice  upon  the  packers  themselves.  The  different 
bases  used  are  shown  in  the  testimony  taken  by  Mr.  Perley  Morse, 
and  we  will  not  attempt  to  go  into  that  matter  deeply  at  this  point. 
Suffice  it  to  say  that  differences  of  millions  of  dollars  due  to  re- 
appraisals, or  the  lack  of  them,  now  operate  to  render  the  policy 
of  profit  based  on  investment  very  unreliable.  The  regulations  as 
they  stand  do  not  lay  down  any  policy  as  to  the  proper  basis  of 
valuing  fixed  assets.  The  packers  are  all  clamoring  to  be  permitted 
to  reappraise  their  properties  on  1918  valuations.  Obviously  if  this 
is  allowed  it  will  result  in  giving  them  millions  of  additional  profit. 
There  is  nothing  in  the  regulations  should  provide  specifically  that 
the  only  proper  basis  at  ^nation  for  the  fixed  assets  of  a  goii^ 
concern,  is  oost-less-depreciation— depreciation  being  sufficient  to  al- 
low for  increased  costs  of  construction. 

A  fourth  weakness  in  the  regulations  is  that  investment  as  now 
defined  is  not  fixed,  but  grows  as  profits  grow — ^in  view  of  the  fact 
Uiat  net  worth  is  a  part  of  investment,  ana  profits  are  a  part  of  net 
worth.  Accordingly,  we  are  allowing  the  packers  to  mase  a  profit 
<m  profit. 

A  comparison  of  the  present  regulations  with  those  of  the  Cana- 
dbn  Government  reveals  other  shortcomings  which,  though  minor, 


MAXXHUii  ZJMIXAXiOH  ON  MSA.T-PACKING  INDUSIfiY.  33 


are  worthy  of  atton^on.   Among  the  more  important  of  them  are 

the  following: 

(1)  The  Canadian  Government  regulates  packers  whether  they 
daughter  or  manufacture  meat  products. 

The  Food  Administration  only  regulates  slaughterers.  This  en- 
ables a  packer  to  buy  live  animals,  have  them  slaughtered  on  com- 
mission, work  up  the  green  meats,  and  be  completely  exempt  from 
regulation.   The  injustice  to  the  packers  who  slaughter  is  obvious. 

(2)  The  Canadian  Government  does  not  bother  with  small  packers 
doing  a  business  of  less  than  $750,000  a  year. 

The  Food  Administration  regulates  all  licenses;  i.  e.,  whoever 
is  doing  a  business  of  over  $100,000.  Fkmu  the  accounting  point 
of  view  regulation  of  these  little  packers  between  $100,000  and  half 
a  million  is  an  interminably  harrassing  piece  of  work  and  it  is 
doubtful  if  the  results  obtained  are  worth  the  great  effort  of  re- 
quiring and  certifying  to  profits.  -  ,  . 

(8)  Besides  limiting  piuskers  to  2  per  cent  gross  value  of  their 
sales,  the  Canadian  Government  further  provides  that  no  packer 
shall  make  over  16  per  cent  on  his  net  worth  and  that  all  profits 
between  7  per  cent  and  15  per  cent  shaU  be  divided  equally  between 
the  packer  and  the  Government. 

Our  figures  show  that  certain  of  the  small  packers  under  the  Food 
Administration  regulation  are  allowed  prodigious  profits  on  their 
net  worth,  even  though  thev  are  still  under  the  2^  per  cent  pro- 
vision on  their  sales.  In  the  last  analysis  the  stockholders'  return 
is  the  only  true  measure  of  profiteering,  and,  accordingly,  a  second- 
ary test  regulation  on  net  worth  might  well  be  considered  for  the 
small  packers  in  the  United  States. 

(4)  The  Food  Administration  allows  the  packers  who  fed  than- 
selves  aggrieved  with  the  2^  per  cent  provision  to  apply  for  a  special 
ruling.  This  ruling  is  granted  if  the  packer  can  show  that  his  pro- 
war  earnings  were  in  excess  of  2  J  per  cent. 

Guiada  has  no  special  rulings  whatsoever,  and  what  she  loses  in 
particular  disgruntlement  she  probably  mote  than  gains  by  a  sense 
of  universal  equality  of  treatment.  -  , 

(5)  The  Canadian  Governineiit  aeta  umiOTn  rates  of  dq^ 

for  all  packers. 

This  K  a  course  that  the  Food  Administration  might  adopt  after 
a  sufficient  study  of  present  rates  had  been  made  to  warrant  an 
equitable  uniform  procedure. 

(6)  The  Canadian  regulations  provide  that  profits  m  excess  of 
the  allowed  rate  should  be  turned  over  in  cash  to  the  receiver  general. 

The  Food  Administration  would  be  somewhat  embarrassed  if  it 
found  itself  with  excess  profits  to  deal  with.  No  provision  is  now 
made  for  their  disposition.  In  our  opinion  such  provision  should 
be  made.  It  is  absurd  to  hope  that  a  given  packer  can  so  govern 
his  business  as  to  come  out  at  the  end  of  the  year  exactly  within  his 
allowed  profit,  and  it  would  not  be  fair  to  require  him  to  do  so. 

(7)  The  Canadian  regulations  govern  not  only  the  products  of  live 
stock,  but  if  any  packer  ha*  a  department  dealing  with  ''human 
food  "  such  a  department  is  also  regulated  as  a  part  of  the  packing 
business. 


ISdSSS— S.  Doc  UO,  66-1- 


34     MAXIMUM  nOWrS  UMITATiaV  OV  MBA3SPACWHG  KKDUSTRY. 


This  provision,  particularly  in  war  time,  i9  worthy  of  serioufi 

consideration. 

(8)  The  Canadian  regulations  provide  a  penalty  of  $5,000  fine  or 
SIX  months  in  jail,  or  both,  to  any  packer  who  willfully  disregards 
any  of  the  provisions  of  the  regulations.  This  does  not  apply,  of 
course,  to  excess  profits,  but  rather  to  methods  of  accountmg  and 

reporting.  v    t-  j 

It  is  possible  that  a  penalty  provision  would  strengthen  the  Food 
Administration  regulations. 

INVENTORY  PBICES. 

Be^r«  concluding  this  section  a  word  should  be  said  regarding 
file  Tery  unsatisfactory  status  of  inventorv  valuations  under  the 
present  regulations.  The  reflations  originally  called  for  "  true,  fair, 
and  full  market  price."  This  was  subsequently  changed  by  order  of 
Mr.  Cotton  to  "  cost "  where  no  market  figures  were  available.  The 
packers  inventoried  those  products  that  had  a  market  value,  close  to 
the  full  value  on  November  1,  when  the  regulation  began,  but  sub- 
sequently they  have  been  following  their  old  conservative  practice  of 
valuing  under  the  market,  thereby  successfully  wrecking  any  intelli- 
gent figures  on  actual  profits  to  date.  An  order  has  recently  been 
promulgated  by  the  Food  Administration  requiring  that  all  pork 
products  be  priced  at  1  cent  under  the  cash  market,  but  this  is  in  the 
nature  of  locking  the  stable  after  the  horse  has  gone.  No  reliable 
figures  of  profit  can  be  obtained  until  the  question  of  inventory 
prices  is  thoroughly  examined  and  a  uniform  procedure  establisAiea. 

We  conclude  section  2  by  maintaining  that  the  present  regula- 
tions even  if  rates  were  reauced  to  a  more  reasonaWe  level — contain 

a  number  of  provisions  that  are  badly  in  need  of  amendment.  While 
such  amendments  mi^t  conceivably  be  postponed  until  the  regula- 
tions had  nm  a  full  year  in  order  that  adequate  study  might  be  made 
of  them,  it  is  certain  that  the  regulations  as  they  now  stand  are  in 
temporary  rather  than  in  sound  permanent  form. 

Furthermore,  as  we  have  already  observed,  if  the  class  divisions 
are  to  permanently  continue,  only  a  large  staff  can  attempt  to  protect 
the  Government  in  administering  them ;  and  we  say  "  attempt "  ad- 
visedly It  is  our  convinced  opinion  that  the  only  practicable  method 
of  regulation  from  both  the  public  and  the  accounting  point  o{  view 
is  that  of  the  business  as  a  whole. 

SECTION  III.  A  PROPOSED  METHOD  OF  BBOUIaATION. 

It  is  evident  that  a  profit  regulation,  while  it  can  be  so  framed 
•s  to  have  the  further  effect  of  stimulating  production,  can  not  exert 
much  influence  on  nor  hope  to  control  prices.  Beyond  being  sure 
that  a  given  regulation  would  not  have  a  tendency  to  inflate  prices, 
its  aims  should  be  primarily  to  prevent  profiteering,  while  main- 
tainino"  production.  The  undersigned  have  prepared  a  system  of 
regulation  which  we  believe  will  accomplish  these  ends. 

J>lan.— For  the  purpose  of  applying  thqse  regulations  to  all  pack- 
ers now  subject  to  regulation  by  the  Food  Adnunistration  there 
shall  be  created  two  divisions  licensed  by  the  Food  Administration. 
Division  1  shall  be  composed  of  all  packers  whose  sales  value  m 


ICAXnCITM  ntOFIT  UMnAXION  OK  MBAT-PAGKIHG  OTDUSTBY.  36 

1917  exceeded  $100,000,000.  Division  2  shall  be  composed  of  all 
packers  whose  sales  amounted  to  less  than  $100,000,000. 

Any  licensee  in  division  1  shall  be  allowed  to  retain  from  the  net 
profits  resulting  from  the  business  done  in  1918  a  sum  equal  to  10 
per  cent  of  the  net  worth  as  shown  by  the  balance  sheet  of  such 
licensee  at  the  end  of  the  fiscal  year  1917,  provided  the  weight  vol- 
ume of  all  animals  slaughtered  by  such  licensee  during  the  fiscal 
vear  1918  shall  equal  or  exceed  the  weight  volume  of  all  animals 
slaughtered  during  the  fiscal  year  1917.  For  each  increase  of  10  per 
cent  in  weight  volume  of  animals  slaughtered  in  1918  over  1917 
licensee  shall  be  permitted  to  retain  from  net  profits  realized  an  addi- 
tional amount  equal  to  1  per  cent  of  net  worth,  but  in  no  event  shall 
the  total  profits  retained  by  any  licensee  amount  to  more  than  15  per 
.  cent  of  the  net  worth.  For  each  decrease  of  10  per  cent  in  weight 
volume  slaughtered  by  any  licensee  in  1918  there  shall  be  deducted 
from  the  profits  aUowed  a  sum  eaual  to  1  per  cent  of  the  net  worth, 
hat  in  no  event  stM  the  total  deauctkms  so  made  reduce  the  profits 
allowed  to  iess  than  7  per  cent  of  tibe  net  worth. 

All  excess  profits  realized  by  any  licensee  over  the  amount  to  be 
determined  on  the  basis  outlined  above  shall  be  credited  to  the  United 
States  Government  on  tiie  books  of  such  licensee,  and  may  be  used 
by  the  chairman  of  the  meat-purchasing  board  in  settlement  of  pur- 
chases of  meat  or  other  food  products  for  the  Army  and  Navy  of  the 
United  States  Government  from  such  licensee;  but  the  chairman 
of  the  meat-purchasing  board  may  set  aside,  for  the  purpose  of  estab- 
lishing an  inventory  reserve,  such  part  of  the  profits  thus  received 
by  the  United  States  Government  as  may  in  his  judgment  seem  nec- 
essary to  protect  any  licensee  from  loss  by  virtue  of  reduction  in 
final*  prices  realized  for  products  below  the  prices  at  which  such 
products  were  carried  in  inventory  at  time  profits  were  determined, 
but  any  part  of  inventory  reserve  not  used  in  defraying  actual  losses 
resulting  from  sales  of  such  product  shall  be  retained  by  the  United 
States  Government. 

All  licensees  shall  continue  to  rraider  reports  as  provided  by  (he 
regulations  now  in  force,  but  no  determination  of  profits  shall  be 
made  for  purpose  of  the  regulati<m  herein  provided  for  until  the 
end  of  the  fiscal  year. 

The  above  regulation  is  subject  to  immediate  criticism  on  certain 
lines,  as  follows: 

A.  When  the  packers'  entire  busine^  is  regulated,  including  the 
outside  specialties,  it  places  him  at  a  disadvantage  with  competitors 
who  manufacture  these  specialties  only  and  who  would  be  unregu- 
lated. 

Answer.  (I)  If  the  regulation  excludes  these  products,  it  is  unfair 
to  the  Government  and  the  people  because  of  accounting  difficulties; 
if  it  includes  them,  there  is  a  possibility  of  its  being  unfair  to  the 
packers.  As  between  two  evils,  who  shall  be  protected — ^the  people  or 
the  packers  ? 

(II)  The  packers'  specialty  business  es  not  on  a  parity  with  his 
competitor  in  the  same  line  of  business  because  of  (1)  his  steady  sup- 
ply of  raw  material;  (2)  his  advantages  of  distribution  due  to  a 
world-wide  organization  of  selling  facilities;  (3)  financial  strength 
and  borrowing  power;  (4)  finally,  if  the  legolataon  applied  to  the 


86     MAXIMTTM  PBOWT  LIMITATION  OH  IflAT-PAimHO  ITOUSTBX. 

Biff  Five,  most  of  their  specialty  departments  together  can  exert  such 
a  prepondeniting  influence  on  the  market  that  competitors  would  be 
forced  to  meet  prices,  and  thus,  in  effect,  compeUtors  would  them- 
selves be  regulated.  ,  .  i  i  n  in 
B.  If  the  packers'  entire  business  is  regulated  he  will  so  undersell 
his  competitors  in  specialty  business  that  before  the  period  of  regula- 
tion is  over  the  big  packers  will  control  absolutely  the  whole  specialty 

business  of  the  country.  .  .1. 

Answer.  If  it  appears  that  the  big  packers  can  operate  these 
specialty  businesses  more  effectively  than  the  independents  it  is  sound 
war-time  efficiency  to  let  them  do  it.  The  only  danger  m  the  situation 
would  be  the  failure  of  the  Government  to  contmue  its  regulation  of 
the  packers  and  their  affiliated  companies  after  the  war. 

C  Owing  to  the  different  methods  of  valuing  fixed  assets  now  ob-. 
taining  on  the  books  of  the  Big  Five  it  is  unpossible  to  equitably 

value  net  worth.  ...        ,  ,   i_  j 

Answer.  This  is  a  serious  objection  and  can  only  be  answered  after 
considerable  study  as  to  the  posabiUties  of  putting  the  packers  on  a 
rough  equality  of  mvestment  as  of  November  1,  1917.  Basis  of  such 
valuation  should  be  cost  less  depreciation  sufficient  to  cover  tlie  in- 
cieased  costs  of  constructions  m  recent  years.  It  must  be  remem- 
bered, however,  that  the  present  regulation  is  subject  to  the  same  ob- 
jection. 

The  advantages  of  the  above  regulation: 

A.  Profiteering  is  prevented  absolutely  and  the  certificaUon  of  that 
fact'becomes  a  relatively  simple  accounting  procedure. 

B.  An  incentive  to  increased  production  is  provided. 

C  The  packers  are  allowed  to  think  in  terms  of  a  year  rather 
than  in  terms  of  a  two  months'  period  in  imposing  the  regulation 
upon  themselves.  The  limitation  based  on  the  two  months  period 
is  obviously  absurd,  owing  to  the  difficulties  of  getting  accurote 
profits  in  the  packing  business  in  any  period  less  than  a  year,  l^e 
provision  crediting  excess  profits  against  future  purchases  for  the 
Armv  and  the  Allies  allows  the  packers  more  freedom  m  the  conduct 
Ox  their  business  during  the  year  while  insuring  the  business  against 
any  exorbitant  profits  at  the  end  of  the  year. . 

1).  Provision  for  inventory  reserve  msurmg  the  packers  against 
a  rapid  decline  in  market  valuations  takes  away  their  stongest 
argument  against  profit  limitation.  •,  vu  i 

Finally  it  appears  to  us  that  if  the  packers  are  allowed  liberal 
provimon'for  repairs  and  for  depreciation,  if  they  are  allowed  to 
charge  all  interest  on  borrowed  money  against  income,  and  if  on 
top  of  this  they  are  allowed  a  reasonably  liberal  profit  on  their  net 
worth  with  the  further  provision  that  increased  production  will 
be  compensated  with  an  added  percentage  of  allowed  profit,  it  is 
difficult  to  see  what  more  in  simple  justice  they  could  except. 

The  packers  must  be  made  to  realize  that  their  industry  is  so 
absolutely  essential  to  the  prosecution  of  the  war  that  not  only 
must  the  supplies  which  are  needed  for  our  Army  and  Navy  be 
furnished  in  the  quantities  needed  without  hesitation  or  quibble 
as  to  profits  on  their  part,  but  that  the  civilian  population  of  the 
United  States  also  must  be  provided  to  the  fullest  possible  ^tent 
with  the  food  supplies  needea  to  sustain  them  and  to  nuiiish  the  en- 


MAXIMUM  PBOnT  UMITAXION  ON  MEAT-PACKING  INDUSTBY.  37 


ergy  with  which  to  meet  the  additional  tax  on  their  strength  which  the 
speedmg  up  of  production  has  placed  upon  them.  The  people  must 
be  assured  that  the  packers  are  doing  their  part  too  and  that  there 
shall  be  no  profiteering.  The  full  confidence  of  the  people  is  needed 
to  win  this  war  and  the  Government  must  see  to  it  that  there  is  no 
betrayal  of  that  confidence.  If  we  give  the  packers  more  profit 
than  is  provided  for  in  this  proposed  regulation  we  oompromise 
the  Government  and  betray  the  people. 
Respectfully  submitted. 


BaOilBITS  TO  REPORT  OF  STUART  CHASE. 

EIXHIBIT  I. 

Pemnfoftf  of  profU  amd  net  ¥>ortK 

(Dollars  in  thoomnds.! 


Aimoor* 

Swtft. 

Mwris. 

WilMO. 

Codahy. 

J229, 122 

76,782 
» 91, 785 

$232,337 

69,361 
83,500 

$86,018 

13, 246 
14,430 

$80,011 

6,365 
16,220 

$59,777 
4,300 
14,058 

397,689 

385,198 

113,694 

103,496 

78,120 

97,326 

32.622 
» 38, 991 

124,417 

37, 148 
44,697 

36,601 

5,636 
6, 138 

28,022 
2,204 
5,617 

24,171 
1,738 
5,683 

10^039 

206,262 

48,375 

35,843 

31,592 

20,621 
11,517 
«8,332 

20, 910 
10,404 
14,930 

7,742 
1,987 
2,343 

7,282 
955 
2,077 

5,380 
645 
«2,774 

40,470 

46,244 

12,072 

10,314 

8,799 

21.10 

35.30 
«21.37 

16.81 

28. 02 
33.35 

21.15 
35.26 
38.17 

25.99 
43.33 
36.08 

22.26 
87.  U 
48.81 

23.96 

22.42 

24.95 

28. 77 

27.85 

$5,488 

1,839 
2, 199 

$5,216 
1,557 
1,877 

$2,199 
338 
M» 

$2,647 
208 

ni 

fi,i«r 

188 

411 

9,526 

8,650 

2,906 

3,386 

8,888 

15, 133 
9,678 
«6,133 

15,694 
8,847 
13,053 

5,543 
1,649 
1,974 

4,635 
747 
1,546 

3,593 
517 
8,8B 

30,944 

37,694 

9,166 

6,928 

6,461 

15.  55 
29.67 
•15.73 

12. 61 
23.82 
30l16 

15. 14 
29.26 
S2.16 

16.54 
33.89 
97.20 

14.86 
29.74 
41.40 

3  18.32 

18.22 

18.05 

10.88 

»l48 

y 


Total  investment: 

Class  I  

Class  II I  

ClaaslU.  


TMal. 


Net  worth,  ICar.  8;  IMS:* 

Class  I  

Class  II  

CaaaallL  


Allowed  profit,  second  nport: 

Class  I  (9  per  cent)  

Class  II  (15  per  cent)  

Class  III  (present  rate)<. . . 


ToUl(Mtlnukt«d). 


PercentaM  allowed,  profit  to  net  worth: 

Class  I —  .- 

Class  II. ......«....•.••••-•••••••••• 

Class  IIL  


Total. 


■tHoMted  interest : 
Class  I  

Class  II  

Class  III  


Total. 


MM  allowed  profit: 

Class  I  

Class  II  

Class  m.  


Total. 


fir  «nt  net  allowed  profit  to  net  worth: 

(SassI  

Class  III  

Class  III  


Total. 


t  Includes  leather  and  fertilizer,  bads  of  Ner.  1, 1817,  flforaa. 

« Foreign  business  not  indudea.  .    .  . 

» Net  worth,  as  divMfid  arbitraiily  by  elaaaes,  on  mm  tmUm'  T©toIUn»«UHWit.- 


38     MAXIMUM  PBOFIT  LIMITATION  ON  MEAT-PAOKIKQ  moUSTBY. 


BSHXBIT  U. 


Group  1 — Fao4, 

American  BUHmll  Oow  (NfttkMMl  Bto- 

cuit  Co.). 

American  Cereal  Co.   (Quaker  Oats 
Oo. 

Loose-Wiles  Biscuit  Oo. 
Booth  Fisheries  Co. 
American  Cotton  Oil  Co. 
Com  Products  Co. 

Cfroup  2 — Automobile. 

AUIs-Chalmers  Manufacturing  Co. 
Chandler  Motor  Car  Co. 
Studebaker  Corporation. 
WiUys-Overland  Ca 
Maxwell  MotxHr  Oo. 

Qroup  9 — Bubher, 

Goodyear  Tire  &  Rubber  Co. 

Unltod  States  Rubber  Oo. 

Kelly  Springfield  Tire  Oo. 

B.  F.  Goodrich  Co. 

Canadian  Consolidated  Rubber  Co. 

Oromp  4^oaL 

Plttil>ttrg  Ooal  Co. 

Vlrgliila  Iron,  Ooal  &  Coke  Oo. 


Group  4 — Coal — Continued. 

Lehigli  &  Wilkes-Barre  Ooal  Oo. 
Oopsoitdated  Ooal  Co. 

Group  5 — Steel, 

United  States  Steel  Co. 
Midvale  Steel  Co. 
Lackawanna  Steel  Co. 
American  Steel  Foundries. 
American  LocomotlTe  Oo. 

GfWp  6 — Sugar, 

American  Beet  Sugar  Oo. 
Cnbo  Cane  Sugar  Co. 
American  Sugar  Refining  Co. 
Ouba  American  Sugar  Oo. 

Group  7— Hide*,  > 

American  Hide  h  Leathtf  Oo. 
Central  Leather  Oo. 

(3roup  8 — Electric 

General  Electric  Oo. 
WestlDghouse  Blectrlc  Oow 


EixmKrr  IIL 


PKOPOaiD  TTNIVOBM  CIA88mOATION. 


A.  Packing-house  manufacturing. 
Beef  section,  class  1: 
Dressed  beef. 
Hides. 
Oleo. 

Beef  cuts. 

Beef  casings. 
Smoked  beef. 
Pickled  beef. 
Mixed  beef  producta. 
pork  section,  class  1 : 
Fresh  pork  cuts. 
Dressed  hogs. 
Smoked  pork. 
Hams. 
Barrel  pork. 
Dry  salt  pork. 
Lard. 

Pork  casings. 
Mixed  pork  products. 

Sheep  section,  class  1: 
Dressed  sheep. 
Pelts. 

Sheep  casings. 

Sheep  ofFal. 
Calf  section,  class  1: 

Dressed  calves. 

Calf  skins. 

Calf  offal. 
Mixed  section,  class  1: 

Canned  meats. 


A.  Packing-house  manufacturlng—Om 

Mixed  section,  class  1 — Oon. 

Sausage. 
Butterine. 

Tallow  and  grease  (tanks). 
Beef  extract 

B.  Live-stock  product  specialties: 

Leather,  tanneries,  class  2. 
Fertilizer,  commercial,  class  2. 
Soap,  washing  powders,  classes  2, 8. 
Glue,  class  2. 

Rendering,  city  fat  and  liides, 
class  2. 

Hair,  bedding,  brushes,  class  2. 
Stock  food,  class  2. 
Ammonia,  class  3. 
Serum,  class  3. 
Pepsin,  class  2. 
Mince  meat,  class  2. 
Gut  strings,  class  2. 
Pork  and  beans,  class  3. 
Pharmaceutical,  class  2. 
Glycerin,  dass  2. 
Sandpaper,  class  3. 
Animal  oil,  class  2. 
O.  Xonlive  stock  food  products: 

Lard  substitutes— Ootton  Oils, 
class  3. 

Poultry,  class  8. 

Eggs,  class  8. 

Butter,  buttermilk,  dass  8. 


MAXIMUM  PBOm  UMITAXIOK  ON  MIAT-'PACKINQ  UIUUSIRT.  39 


O.  Nonlive  stock  food  products — Con. 
Lard     substitutes — Cotton  oils, 
class  3— Continued. 
Creamery,  class  8. 
Cheese,  class  8. 
Fi'  h,  class  3. 
Vegetables,  class  3. 
Fruit,  class  8. 
Grape  juice,  class  8. 
Soda  fountain  supplies,  class 
8. 

Condiments    and  preserves, 
class  3. 

Peanut  butter,  class  3. 
Groceries,  class  3. 
Special  services: 
Car  lines,  class  1. 
Cold-storage  warehouses,  class  1. 
Ice  manufacturing,  class  1. 
Stockyards,  claFS  3. 
Water  companies,  class  8. 
Real  estate,  class  3. 
Phosphate  mines,  class  3. 
Board  of  trade  options,  class  3. 
Sporting  goods,  da^s  8. 


D 


D.  Special  services — Continued. 

Kelp,  class  3. 
K,  Supply  departments: 

Bags,  dass  2. 

Boxes,  class  2. 

Cooperage,  class  2. 

Printing,  class  2. 

Laundry,  all  clan  es. 

Car  repair  shops. 

Car  manufacturing. 

Tin,  class  2. 

Laboratory,  all  dasses. 
F.  Selling  agendes: 

Branch  houses,  all  classes. 

Commission  houses,  all  classes. 

Oar-route  d^Mirtment,  all  classes. 
Q.  Investments :  dass  3  (not  depaxt- 
mentalized) — 

Coal  mines. 

Salt  mines. 

E^ublishers. 

Farm  papers. 

Banks. 

Cattle-loan  companies. 


Exhibit  IV. 
BaHs  of  distributUm,  indirect  expenses. 


General  adminis- 
trative distrib- 
uted to  plaatsom 

ISMiSOf. 

Distrfboted  to  de- 
partments on 

basis  of. 

Plant  overhead, 

factory, 
Taxes^... 


interest. 


Power  dqptfl- 


Annoor. 


Sales,  prodnoe 
department, 
scaled  down 
50  percent. 

Sales  


Buildings  and 
iHSifliiiinry. 

6  per  cent  on 
average  in- 
vestment. 


Swift 


f  of  1  per  cent 
of  sales, 
actual  distri- 
bution. 

Sales,  produce 
department, 
scaled  down 
50  per  cent. 

Labor  pay  roll.. 


Buildings 

^  par  cent  on 
invwiment. 


and 


VAoflpwcmt 
of  sales, 

.  actual  distri- 
bution. 


Itaxis. 


Sales. 


Sales,  produce 
department, 
doabied. 


Factory 

roll. 
Sales'... 


pay 


6  per  emt  on 

department 
investment 
and  expense 
department 
investment. 
Direct  charge... 


Wilson. 


Sales,  pay  roll 
and  invest- 
ment. 

Salary  i)ay  roll 
and  invest- 
ment. 

Plant  payroll.. 

Buildings,  ma- 
chinery, and 
stock. 

6  per  cent  on 
investment 
except  in  cer- 
tain plants. 


Included  in  ad- 
ministratlYe. 


0) 


Cndahy. 


Sales. 


Pay  roll. 

Buildings,  mar 
chinwy,  and 
stock. 

Actual  intwest 
on  basis  of 
investment. 


tin  each  of  the  five  companies  the  engineer's  d^parbnent  prepares  Oedtotr 
teent  in  eadi 


liTTMTiTi 


.bat  the  teds iadif- 


EXIUBIXB  SUBMUTBD  WiTH  BePOST  OF  PeRLET  MoRSB  &  Co^ 

fied  puwleg  acoounxahts. 

June  14,  1918. 

Mr.  P.  S.  Whxfpus,  Perubt  Mobsb  A  Co., 

Certified  public  aoeauntants. 

Dear  Sir:  I  tmderstood  the  other  day  that  Mr.  Morse  was  to 
leave  town  Thursday  night  and  I  tried  to  reach  you  this  morning 
to  make  engagement  to  go  oyer  with  you  some  points  in  the  tran- 


40     lAAZIMUM  PBOMT  UMIIATION  ON  MBAT-PACKING  INDUSTRY. 


script  of  testimony  taken  at  our  office  the  other  day  which  I  think 

should  be  corrected. 

Call  your  attention  to  the  following: 

Page  — ,  next  to  last  sentence  should  read,  "  Our  regulations  here 
make  it  mandatory  that  the  profits  of  packing  business." 

Page  — ,  near  top,  should  read.  "  They  have  taken  this  thing  (the 
United  States  Food  Administration  meat  division  regulations)  and 
adopted  it  to  a  very  great  extent." 

Just  below,  "  I  think  that  one  feature  is  better  and  it  has  always 
been  quite  prominent  to  us,  namely,  that  of  not  requiring  us,  etc*' 

Page  — y  second  line,  MacAuley  should  be  Mozley. 

Page  — ,  strike  out  two  words,  "liberty  to"  and  subsdtnle  ** lib- 
erally." 

^Bigjd  — ,  strike  first  word  and  substitute  "  depreciated." 

Page  — ,  strike  last  sentence  and  substitute    In  money  but  not 

in  tcflMiage." 

Page  146,  strike  next  to  last  word  "  factory  "  and  substitute  m- 
dustry." 

Page  147,  add  after  Denver,  fourth  line,  "Kansas  City,  South 
Omaha,  St.  Joseph,  East  St.  Louis,  and  other  cities." 

Page  152,  tenth  line,  strike  comment  by  Mr.  Chai:)lin  and  substi- 
tute "  Direct  expenses  are  charged  directly  to  departments  affected. 
In  the  case  of  our  branch  houses,  we  have  the  actual  results." 

Page  154,  fourth  line  from  bottom,  strike  word  "  private."  Sub- 
stitute "  profit." 

Page  156,  ninth  line  should  read  "  one  hundred  and  fifty  millions" 
instead  of  "  fifty  millions." 
Page  169,  last  line,  sirike  word  "to.** 

Page  170,  first  syllable  should  be  **ruption"  instead  of  "ven- 
tion." 

Page  179,  fifth  line,  strike  words  "  not  quantities.  It  would."  Sub- 
stitute "A  certain  rate  might." 

Page  181,  fourth  line  from  bottom,  strike  word  "house."  Sub- 
stitute "  product."  Strike  words  "  with  the  department  in  it " ;  third 
ixGOk  last  line, "  value  of  "  should  read  "  values  in." 

Page  182,  sixth  line  from  top,  strike  "  we  have  fixed."  Substitute 
"  it  figures."  Word  "  superintendents  "  should  be  "  superintendence." 

Page  186,  ninth  line  from  top,  strike  Mr.  Chaplin's  comments  and 
substitute  "  Live  stock  is  not  like  some  chemicals  that  you  can  split 
up  and  have  exact  quantities  of  the  resulting  elements.  In  a  steer 
every  bunch  differs  m  yields  from  other  bunches.  You  have  got  to 
take  averages." 

Yours,  respectfully, 

Wm.  B.  Tratnor. 

MsAT  Packers'  Pboffts  Investigation — Bei^ore  the  Federal. 

Trade  Commission. 

Chicago,  III.,  June  lly  1918^  S  o'clock  p,  m. 

(SWIFT  A  00.) 

Meat  packers'  profits  investigation  by  the  Federal  Trade  Com- 
mission to  ascertain  if  the  United  States  Food  Administration 
meat  division  rules  and  regulations,  in  force  since  November  1, 1917, 


V 


y 


MAXIMUM  PROFIT  LIMITATION  ON  MBAT-PACKING  INDUSTBY.  41 

are  reasonable  or  unreasonable,  pursuant  to  President's  meat  com- 
mission report  of  May  27,  1918,  in  which  ihd  Federal  Trade  Com-- 
mission  are  authorized  or  instrueted  to  make  an  examination  into 
l^eee  regulations. 

Present  on  behalf  of  the  Federal  Trade  Cwnmission:  Stuart 
Chase,  Esq.;  Samuel  W.  Tator,  Esq.;  Perley  Morse  &  Co.,  certified 
public  accountants.  New  York,  represented  by  Perley  Morse,  Esq., 
and  P.  S.  Whipple,  Esq.  ^   _      ^  ^ 

Present  on  behalf  of  Swift  &  Co. :  Edward  F.  Swift,  Esq. ;  G.  F. 
Swift,  jr.,  Esq. ;  H.  Swift,  Esq. ;  W.  D.  Traynor,  Esq.;  J.  S-  Chaplin, 
Esq.;  L.  D.  H.  Weller,  Esq.;  H.  J.  Nelson,  Esq. 

FROCEEDINOS. 

Mr.  Edward  F.  Swept.  I  would  like  to  make  a  statement  that  the 
packing  business  is  a  seasonable  business  and  a  six  months'  period 
^  har<&y  sufficient  to  arrive  at  a  conclusion;  that  it  should  have 
at  least  a  year  or  a  series  of  years  is  even  more  desirable;  that  in 
the  packing  business  there  are  certain  parts  of  the  product  that 
are  accumulated  during  certain  months  and  disposed  of  during  the 
following  months,  and^  as  previously  stated,  it  would  take,  at  least 
to  make  a  fair  comparison,  with  a  mir  degree  of  accuracy  upon  the 
business,  a  year,  and  several  years  would  be  still  better. 

I  would  like  to  make  a  general  statement,  that  all  commodities, 
including  the  use  of  money,  is  demanding  higher  returns;  that 
live  stoS  is  costing  at  least  100  per  cent  more  than  previous  to  the 
war.  Labor  is  100  per  cent  higher.  The  commodities  used  in  the 
packing  business,  including  construction  of  buildings,  supplies  of 
various  kinds  necessary  to  use  in  the  preparing  of  meats,  machinery, 
and  equipment,  are  from  50  to  75  per  cent  higher  than  previous  to 
the  war.  On  account  of  the  high  prices,  approximately  nearly  100 
per  cent  in  doing  business,  there  is  a  larger  element  of  risk.^  On 
June  1,  under  the  9  per  cent  section  of  the  meat  business,  Swift  & 
Co.  had  401,000,000  pounds  of  product  on  hand.  A  reducti<m  in 
price  of  that  product  of,  say,  5  cents  a  pound,  would  amount  to 
$20,000,000,  wmch  condition  we  expect  to  face  some  time.  Five  cents 
a  pound  does  not  exceed  20  per  cent  reduction  in  the  present  prices. 

Keplacements  in  Uie  paclang  business  must  always  mean  an  ex- 
penditure of  a  large  amount  of  money  on  account  of  striving  for 
unproved  methods  and  improved  machinery—improved  everythmg— 
and  the  cost  of  operation  consequently  increases  for  the  same  reason. 
We  are  striving  to  do  thing^  better  and  to  deliver  our  goods  in 
better  condition.  In  considering  the  9  per  cent  profit  basis  I  would 
like  to  call  attention  to  the  fact  that  that  is  the  maximum  profit,  and 
the  packer  has  to  take  all  the  risk.  There  is  no  guaranty  of  any 
kind. 

That  is  all  the  general  statement  I  have  to  make. 

Mr.  Morse.  Is  there  any  other  general  statement  that  any  of  you 
gentlemen  desire  to  make? 

Mr.  G.  F.  Swift,  Jr.  I  do  not  think  so  at  the  moment,  Mr.  Morse. 
Perhaps  we  may  be  allowed  to  add  something  a  little  more  general, 
later,  when  we  get  down  to  it  a  little  closer. 

Mr.  Morse,  iou  will  all  have  ample  opportunity  to  say  anything 
yovL  want.  In  fact,  we  are  here  to  get  mformation  from  you,  and 
anything  that  you  want  to  say  we  wifl  be  glad  to  have  it. 


42     MAXIMUM  PBOITIT  LIMITATION  ON  MEAT-PAOKING  INDUSTRY. 

Mr.  Edward  F.  Swift.  We  will  be  very  pleased  to  gite  it  to  joa. 

Mr.  Morse.  So  you  will  all  have  an  opportunity  to  say  anything 
you  want  to  say  on  that  propositioii. 

I  want  to  ask  you  a  few  seneral  questions,  Mr.  Swift,  and  if  you 
can  awrer  them,  all  ri^t.  xf  the  others  can  answer  tbun,  all  rig^t, 
but  just  so  the  stenographer  will  icnow  who  is  answefing  the  quech 
tions. 

I  have  in  hand  here  the  United  States  Food  Administration 
ocwnmittee  division  rules  and  regulations  which  have  been  in  effect 
finoe  November  1, 1917.  In  these  rules  and  regulations,  article  2,  on 
pages  2  and  3,  provides  for  the  division  of  the  meat  packers'  busi- 
ness into  three  classes.  They  call  it  class  1,  class  2,  and  class  3.  In 
class  1  you  are  allowed  on  your  investment  9  per  cent,  and  the  last 
two  15  per  cent,  and  in  the  other  class  you  arc  unrestricted.  Now, 
have  you  anything  to  say  as  to  the  divisions  of  classes  into  which  this 
is  divided?  Ha\e  vou  any  criticism  to  offer  or  any  suggestions  to 
make  for  a  change? 

Mr.  Edward  F.  Swii-t.  May  I  ask  MSP.  Traynor  to  answer  that 
question?  I  tliink  he  perhaps  can  jpive  a  better  answer  than  I  can. 
Mr.  Traynor  will  answer  this  question. 

Mr.  MoBSE.  Cwtainly. 

Mr.  Tbatnor.  We  think,  as  I  understand  it,  that  the  classifioa- 
tions  are  all  right;  that  is,  the  divisions  betwen  the  different  classes. 
As  I  understand  it,  your  question  is  as  to  the  three  different  classes  f 

Mr.  MoBSB.  Yes,  sir. 

Mr.  Tratkob.  Whether  those  classifications,  as  classifications, 
are  satisfactory?  Does  your  question  go  to  the  one  of  whether  we 
believe  certain  departments  that  are  now  in  class  1  should  be  in 

Mr.  Morse.  Yes.  Either  take  some  of  the  articles  out  of  class  1 
and  put  them  into  class  2,  or  some  out  of  classes  1  and  2  and  put  them 
into  class  3,  or  which  ever  way  you  think  would  serve  the  purposes 
of  the  regulations  and  yourselves  and  the  public  best.  I  want  that 
expression  of  opinion. 

Mr.  Traynor.  We  think  there  ought  to  be  some  changes  as  be- 
tween the  classes. 

Mr.  Morse.  It  has  been  suggested  that  we  state  for  the  record, 
that  this  is  not  a  legal  proceedmg.  This  is  more  or  less  in  confidence 
and  you  need  not  be  afraid. 

Mr.  Edward  F.  Swift.  Oh,  we  are  not  afraid.  We  want  to  an- 
swer correctly  and  to  the  point. 

Mr.  Whippub.  But  what  we  want  is  to  gather  information  rather 
than  anything  else. 

Mr.  Bdwabd  F.  Swift.  May  we  consult  on  that  to  see  whether 
we  would  like  to  add  sometiung  a  little  more  definite  on  the  de- 
jj^uftuient. 

Mr.  Morse.  Yes. 

Mr.  G.  F.  Swift,  Jr.  There  are  some  additions  we  would  like  to 
recommend,  and  we  would  submit  you  a  memorandum  of  our  sug- 
gestions on  that  point  later,  without  going  into  all  the  details  now. 

Mr.  Morse.  I  suggest  that  you  go  into  it  formally  and  generally, 
so  that  we  can  form  some  idea  as  to  how  you  feel  about  this  classi- 
fication. The  reason  I  make  the  suggestion  is  that  our  time  is  limited 
now.  I  might  say  that  you  are  not  bound  by  anything  in  this  pro- 
ceeding. 


MAXIMUM  PROFIT  UMITATIOK  ON  MEAT-FACKIKO*  IKDUSTBY.  43 


Mt.  Whipple.  It  is  to  foe  supplemented  by  a  detailed  statement. 

Mr.  G.  F.  SwuT,  Jr.  We  thmk  that  soap,  butterine,  glue,  wool, . 
commercial  fertilizer,  city  hides  and  fat;  lubricating  oils — grease 
and  lubricating  oils  shcmld  be  in  the  unrestricted  department  be- 
cause they  are  a  distinct  and  s^arate  business  and  compete,  to  a 
large  extent,  with  people  that  are  not  in  the  packing  business  and 
whose  business  in  those  lines  is  not  restricted  or  controlled. 

Mr.  Morse.  Is  there  any  classification  in  class  3  that  you  would 
suggest  should  be  removed  into  class  1  ? 

Mr.  G.  F.  Swift,  Jr.  No,  sir. 

Mr.  Morse.  How  about  stockyards?  Don't  you  think  that  should 
be  put  into  another  class? 

Mr.  Traynor.  Which  means  that  they  are  not  under  the  regu- 
lation ? 

Mr.  Morse.  Yes. 

Mr.  Traynor.  Your  question  goes  to  private  regulation  or  to 
control? 
Mr.  Morse.  Private  regulation. 

Mr.  G.  F.  Swift,  Jr.  Well,  I  would  say  no.  If  they  are  to  be 
related  it  should  be  on  some  basis  entirely  foreign  from  the  pack- 
ing business.  Ths  stodkyards  are  not  all  owned  by  the  packers  and 
therefore  they  are  an  inaustry  by  themselves.  They  should  be  regu- 
lated, if  they  are  to  be  regulated  at  sll,  as  industnes  on  an  entirely 
separate  and  independent  and  sepaxmte  basis,  whatever  it  is  de- 
termined that  should  be. 

Mr.  MossE.  However,  the  padcers  do  own  stockyards,  eiUier  many 
Or  few,  or  some  of  them,  do  they  not  ? 

Mr.  G.  F,  SwBT,  Jr.  Oh,  yes,  but  not.  all  of  the  stockyards  of  the 
country. 

Mr.  MoBSE.  Well,  that  is  an  essential  part  of  the  meat  industry, 

is  it  not? 

Mr.  G.  F.  Swift,  Jr.  No.  It  has  no  connection.  It  is  an  entirely 
separate  industry. 

Mr.  Morse.  Well,  you  have  suggested  the  removal  of  some  items 
from  class  1  into  class  3.  Are  there  any  removals  in  any  of  the  other 
classes  from  one  class  to  another  that  you  would  like  to  suggest? 

Mr.  Traynor.  From  class  1  to  class  3  those  were. 

Mr.  Morse.  Yes. 

Mr.  TsATNOR.  Also  there  were  two  from  class  1  to  class  8. 
Mr.  McttSE.  Tes. 

Mr.  G.  F.  Swift,  Jr.  I  think  that  covers  it 

Mr,  MoBSB.  As  I  take  it,  you  are  willing  to  have  it  regulated,  bui 
you  want  it  on  a  different  basis? 

Mr.  G.  F.  Swift,  Jr.  On  its  merits.  If  everybody  that  owns  stock- 
yards are  going  to  be  regulated,  natundly  we  are  willing  to  be  reg- 
ulated. 

Mr.  Morse.  I  think  you  are  putting  a  big  job  up  to  some  one. 

Mr.  G.  F.  Swift,  Jr.  Well,  it  is  a  separate  industry,  that  is  all. 

Mr.  Morse.  Are  you  satisfied  that  these  regulations — the  present 
regulations — are  the  best  that  could  be  provided  by  the  Grovemment 
to  regulate  the  packing  industry? 

Mr.  G.  F.  Swift,  Jr.  As  to  the  methods,  you  mean? 

Mr.  Morse.  Yes;  or  as  to  these  specific  regulations  that  we  are 
working  under. 


44   MAXiMuu  nom  limitation  on  bceat-paoking  industbt. 


Mr.  Grafuk.  With  rsfenmie  to  pn^tst 
Mr.  lioBSB.  Tes. 

Mr.  Chapuk.  I  think  the  genmd  plan  is  a  good  one. 

Mr.  MoRfii.  You  like  the  seneral  plan? 

Mr.  Chaplin.  The  genertu  plan  is  satisfactory. 

Mr.  Morse.  Do  you  know  tne  Canadiaa  plan  of  legalitimit  Am 

you  familiar  with  that? 

Mr.  Edward  F.  Swift.  Mr.  Traynor  is  familiar  with  that  and  I 
would  like  him  to  answer  that   I  do  not  know  whether  it  is  applied 

over  there  yet  or  not. 

Mr.  Morse.  I  will  frame  a  question  for  Mr.  Traynor,  if  you  want 

me  to.  Mr.  Traynor,  you  are  familiar  with  the  Canadian  regula- 
tions ? 

Mr.  Traynor.  Yes. 

Mr.  Morse.  How  would  you  compare  them  with  the  United  States 
regulations  as  to  their  regulatory  effect  and  the  workability,  as  far 
as  the  packers  are  concerned  ? 

Mr.  TsATNOB.  Well,  as  far  as  we  know,' the  Canadian  regulations 
have  not  been  formally  put  into  effect  Our  advice  about  them  came 
to  us  from  our  people  m  Canada.  There  seems  to  be  a  delay  about 
ccNBipletiiig  them.  We  know  in  a  general  wav  what  form  they  have 
taken  up  to  date.  For  instance,  the  principal  differrace  is  that  they 
l»0¥ide  that  profits  over  a  certain  amount  may  be  made  and  if  th»j 
are  made  they  go  to  the  Government  as  a  tax.  Our  regulations  hefe 
make  it  mandatory  that  the  packing  business  shall  not  run  over  a 
certain  amount,  so  that  we  have  to  try  to  regulate  our  buying  and 
selling— which  we  are  aiming  to— so  that  we  will  not  make  any 
more  than  the  regulations  aflowed.  It  is  rather  a  difficult  thmg 
to  do. 

Mr.  Morse.  Well,  that  is  one  of  the  differences,  but  another  dif- 
ference tliat  occurs  to  me  is  the  proposition  of  the  Canadian  regula- 
tions basing  the  profit  on  sales;  2  per  cent,  I  think  it  is,  on  sAles. 
while  here  m  the  United  States  the  basis  used  is  the  investment 

Mr.  G.  F.  Swift,  Jr.  For  the  five  larger  packers. 

Mr.  Morse.  Which  method  would  you  prefer? 

Mr.  Traynor.  Well,  I  think  I  would  say  that  we  would  prefer 
the  basis  upon  the  turnover,  which  would  be,  if  equitable,  a  little 
easier  to  figure. 

Mr.  MoKSE.  On  the  turnovtt>— you  mean  on  the  sales? 

Mr.  Tratnor.  Yes.  You  see,  there  is  part  of  the  industry  that  is 
r^ated  in  that  way.  The  padcem  Onteide  of  the  five  larger  pack- 
ers— 2J  per  cent. 

Mr.  MossB.  Would  you  be  willing  to  subject  yourselves— 4;hat  is, 
as  far  as  we  can  do  it— to  the  same  rules  and  regulations  that  are 

provided  in  the  rest  of  the  Canadian  regulations? 

Mr.  Traynor.  No;  I  do  not  think  I  would  want  to  answer  on  that 
without  giving  them  a  little  more  study  in  detail  than  my  present 
knowledge  of  them  gives  me.  I  have  not  reviewed  that  question 
for  a  month  or  more.  The  question  of  the  Canadian  profits  is  not 
entirely  clear  in  my  mind.  It  is  patterned  after  ours,  you  know. 
They  have  taken  this  thing  and  adopted  it  to  a  very  great  extent. 
It  came  out  after  this.  I  think  that  one  condition,  that  has  always 
been  quite  prominent  to  u%  of  not  requiring  us  to  do  our  business 


MAZIMTJM  PROFIT  VOmATlOS  OS  MEAT-PACKINO  IKDUSTRT.  46 

so  that  we  must  come  within  a  certain  profit,  which  seems  a  little 
more  reasonable  way  to  handle  it,  in  a  business  the  size  of  this. 
Tlien  there  is  also  a  provision,  I  believe,  in  the  Canadian  regula- 
tions which  provides  that  although  there  shall  be  a  certain  rate  upon 
the  sales  they  shall  also  not  exceed  a  certain  rate  upon  the  invest- 
ment. There  is  dual  control  there. 

Mr.  Edward  F.  Swift.  Mr.  Traynor  would  like  to  make  a  gen- 
eral statement  on  this  question. 

Mr.  Morse.  We  would  be  very  pleased  to  hear  it. 

Mr.  Traynor.  Swift  &  Co.  would  be  willing  to  agree  to  a  basis 
of  2 J  per  cent  of  profit  on  the  sales  or  turnover  on  the  meat- food 
department;  what  we  call  the  meat-food  departments  are  the  de- 
partments in  class  1. 

Mr.  Edward  F.  Swift.  Which  we  understand  is  the  Canadian 
plan. 

Mr.  Morse.  Well,  there  is  a  7  per  cent  clause  there  on  the  invest- 
ment; half  of  that  is  to  be  retained  by  the  packers,  I  believe,  and 
half  of  that  is  to  go  to  the  Government. 

Mr.  Tratnor,  Anything  over  7  per  cent. 

Mr.  WmppuB.  One-half  of  anything  over  7  per  cent. 

Mr.  Tratnos.  That  particular  clause  of  the  Canadian  arrange- 
ment is  ambiguous  and  our  people  are  free  to  say  that  they  do  not 
know  just  what  it  means. 

Mr.  Chase.  I  can  give  you  that,  I  think.  If  any  licensee  makes 
profits  exceeding  an  amount  equal  to  7  per  cent  upon  the  capital 
actually  invested  in  his  business,  the  licensee  shall  be  entitled  to  re- 
tain in  addition  to  such  7  per  cent,  one-half  of  such  excess  up  to  an 
amount  equal  to  15  per  cent  upon  such  capital,  provided,  however, 
that  the  licensee  shall  not  be  entitled  to  retain  any  profit  exceeding 
an  amount  equal  to  2  per  cent  of  the  gross  value  of  his  sales  during 
any  one  year.  All  profits  in  excess  of  those  that  the  licensee  may 
retain,  shall  belong  to  His  Majesty,  and  shall  be  paid  by  the  licensee 
to  the  receiver  general  of  Canada.  Supplementing  that  is  a  defini- 
tion of  the  word  "capital,"  which  is  perhaps  a  little  ambiguous  as 
I  read  it.   "Capital  actually  invested,"  defined  as  follows: 

The  capital  actually  invested  in  the  business  of  the  licensee  shall  be  the 
amount  paid  up  in  cash  on  his  capital  stock.  Where  stock  has  been  issued 
for  any  consideration  other  than  cash,  the  fair  value  of  the  stock  at  the  date 
of  its  issne  shall  be  deemed  to  be  the  amount  paid  up  on  such  stock.  In 
estimating  the  value  of  the  assets,  real,  personal,  movable  and  infmovable,  and 
to  the  liabilities  of  the  company  at  the  date  as  of  which  such  value  is  to  be 
determined,  in  no  case  sliall  the  value  of  the  stock  be  fixed  at  an  amount  ex- 
ceeding the  par  value  of  such  stock.  The  actual  unimpaired  reserve,  rest  or 
accumulated  profits  of  the  capital  ccnnpany  shall  be  included  as  part  of  Its 
capital. 

"  Kest "  is  the  English  term  for  snrplus,  isn't  it? 
Mr.  Edw^ard  F.  Swift.  I  think  so. 

Mr.  Chase.  So  it  practically  means  it  is  the  capital  stock  plus  its 
surplus,  providinf;  that  capital  stock  had  been  paid  for  in  cash  or 
its  equivalent. 

Mr.  Traynor.  Then  what  is  the  meaning  of  that  "plus  2%,"  and 
what  follows  that?  In  bringing  out  thia  excess  over  7  per  cent! 
What  does  that  mean  i 


46     MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INpySXBT. 

Mr.  Chasb.  Well,  if  you  earn  over  7  per  cent  on  this  capital  as 
defined,  over  7  per  cent  and  under  15,  you  can  keep  one-half  of 
aad  pay  the  other  half  over  to  the  receiver  general. 
Mr.  Tbatnob.  Keep  one-half  of  the  8  ? 

Mr.  Chasb.  One-half  of  the  15.  Suppose  you  earn  10  per  cent 
on  your  net  worth.  Now,  the  net  excess  of  10  per  cent  over  7  per 
cent  we  will  say  is  a  hundred  thousand  dollars. 

Mr.  Tratnob.  In  percentages  it  would  be  3. 

Mr  Chase.  Yes;  3  per  cent.  We  wiU  it  $100,000.  You  could 
keep  $50,000,  and  you  would  have  to  pay  over  to  the  recover  gen- 
eral fifty  thousand. 

Mr.  Tra YNOR.  Making  a  tdtal  of  7^  or  8^  per  cent  f 

Mr.  Chase.  Yes ;  8 J. 

Mr.  Edward  F.  Swift.  Or  if  they  earn  15,  they  would  take  mie- 

half  of  7  and  3£? 

Mr.  Chase.  No.  All  of  the  7  and  one-half  of  the  8,  which  would 

be  11  per  cent. 

Mr.  G.  F.  Swift,  jr.  Under  that  plan  it  would  be  possible  to  earn 
11  per  cent? 

Mr.  Chase.  Yes.  That  is  your  maximum.  That  is  your  maxi- 
mum. 

Mr.  Tbatnob.  Suppose  you  earn  20  per  cent? 
Mr.  Chasb.  You  would  still  get  your  11  per  cent. 

Mr.  Tbatnob.  You  would  get  the  first  7  and  one-half  of  the 
next  8? 

Mr.  Chase.  Yes. 

Mr.  Tra  YNOR.  What  about  the  rest? 

Mr.  Chase.  None. 

Mr.  Tra  YNOR.  That  is  the  way  you  understand  it? 

Mr.  Chase.  Yes ;  and  you  would  not  get  that  if  it  was  more  than 
2  per  cent  on  your  sales.  Always  this  percenta^  on  capital  has  to 
be  less  than  2  per  cent  of  the  sales. 

Mr.  Traynor.  You  know  the  Canadian  packers  are  very  much  dis- 
satisfied with  this  regulation,  and  as  far  as  you  know  it  has  not  been 
put  into  effect.   We  would  not  want  it  here. 

Mr.  Morse.  Why  has  it  not  been  accepted  up  there? 

Mr.  Tbatnob.  I  do  not  know,  except  the  dissatisfaction  voiced 
not  only  by  the  Canadian  packers,  but  by  the  large  business  associa- 
Uons  generally  in  Canada— the  Association  of  Bankers  and  the  As- 
sociation of  Business  Men  and  people  concerned  with  keeping  the 
business  on  a  sound  basis,  who  say  that  a  restriction  of  this  kind  is 
suicide.  It  IS  going  to  paralyse  the  big  industries  which  Britam  is 
Impending  upon  to  help  them  out. 

Mr.  MoBflB.  Have  you  any  idea  that  they  will  ever  put  this  into 
force? 

Mr.  Traynor.  No ;  I  have  not.  I  hope  they  won't. 

Mr.  Morse.  At  the  present  time,  the  mdustry  there  is  unrestricted  ? 

Is  that  true  ? 

Mr.  Traynor.  Well,  I  would  not  say  that.  I  have  not  heard 
from  our  people  for  a  month  or  so  on  that.  We  have  an  understand- 
ing that  they  will  inform  us  when  anything  new  develops.  Theoret- 
ically, I  believe  the  packers  are  under  some  kind  of  a  control;  ncob- 
ably  this  control,  but  actually  I  do  not  know  its  operation.      ^  ' 


MAxncuH  noiix  woTAmm  oir  mbat^paiokikq  ihdubist.  47 

Mr.  Morse.  Yon  would  not  favor  a  regulation  of  that  kind  in  this 

country  ? 

Mr.  Tratnor.  I  would  not ;  decidedly  no. 

Mr.  Chase.  I  have  received  from  the  receiver  general  of  Canada 
what  looks  like  a  very  formal  authoritative  act.  It  does  not  look 
like  a  bill  proposed.  It  looks  like  a  regulation,  finished,  both  in 
French  and  English.    It  starts  out : 

His  Excellency,  the  Governor  General  in  Council,  on  the  recommendation  of 
the  Right  Honorable  Prime  Minister,  under  authority  of  the  War  Exercise 
Act  of  1914,  is  pleased  to  make  the  following  regulations,  and  the  same  are 
hereby  made  and  enacted  accordingly. 

I  thought  it  had  gone  through. 

Mr.  Traynob*  There  seems  to  be  some  question  as  to  who  is  going 
to  administer  it.  They  can  not  find  Bnyone.  who  is  willing  to  take 
it  on.  The  inequalities  of  the  <nrder  in  ooandl,  as  it  is  called— an 
executive  <Hrder,  nere — are  so  apparent  that  there  is  not  any  depart- 
ment that  wants  to  take  the  responsibility  of  enforcing  it.  That  is 
just  the  ^ay  we  get  it  from  our  people  over  there.  I  do  not  know. 

Mr.  Morse.  What  would  you  think  of  a  plan  of  regulation  based 
upon  all  of  your  assets,  or  your  net  worth,  without  any  division 
into  classes  ? 

Mr.  Traynor.  It  would  be  a  matter,  I  imagine,  if  we  could  get  at  a 
satisfactory  basis,  but  it  is  hard  to  get  at  that;  whether  we  are  ac- 
ceptable or  not.  You  see  what  I  mean?  You  make  that  proposi- 
tion— whether  it  would  be  satisfactory  to  us  or  not  would  depend 
upon  what  it  would  provide  in  the  way  of  returns.  Mr.  Swift 
brings  up  the  point  that  any  regulation  of  lines  in  which  we  are 
interested,  and  which  are  also  operative  by  our  competitors  in  those 
particular  lines,  but  who  are  not  in  the  packing  business;  for  in- 
stance, tanning,  soap,  glue.  Any  regulation  on  us  should  be  on  a 
basis  that  will  put  us  on  an  equality  with  thran.  If  we  have  to  com- 
pete with  those  people,  they  should  not  have  an  advantage  of  b^ng 
unrestricted  while  we  are  lestridMl. 

Mr.  Mouse.  Is  that  all  you  want  to  say  on  tliat  proposition! 

Mr.  TsATNOR.  On  the  question  of  the'general  retgulatioaf 

ISIr.  Morse.  Yes ;  in  general  on  these  regulations. 

Mr.  £dward  F.  Swift.  I  would  just  like  to  add  that  there  should 
not  be  any  restriction,  in  my  opinion,  on  the  packers  on  such  lines 
of  business  that  they  do  not  control  as  a  whole.  The  soap  business 
they  do  not  control. 

Mr.  Morse.  Will  you  please  tell  me  right  there  just  what  you  do 

control  ? 

^Ir.  Edward  F.  Swift.  The  fresh-meat  business.  The  packers  all 
over  the  United  States,  some  thousand  or  so,  do  all  the  fresh-meat 
business.  Now,  in  the  soap  business  Proctor  &  Gamble  are  a  very 
much  larger  factor  in  the  soap  business  than  all  of  the  other  factors 
put  together.  There  is  Kirk,  another  big  factor.  The  same  in  the 
tanning  business.  Hundreds  of  large  and  small  concerns  in  the 
tanning  business  besides  the  packers. 

Mr.  Morse.  Do  you  not  also  do  some  tanning  business  f 

Mr.  Edward  F.  Swift.  Yes,  sir. 

Mr.  Mobsb.  Jm*t  it  big  enough  m  thi^  it  eiii  foe  designated  as  a 
per  cent  of  the  whole  that  you  own  or  oontoolf 


48     MAXIMUM  PKOFIT  LlMTriTIOH  OK  MBA!r-iPAOKI]r«  tJiumfiatf, 


Mr.  Edward  F.  Swift.  I  do  not  know.  I  have  never  seen  any 
figures  that  would  show  that.  The  butterine  businefis  is  an  inde* 
pendent  business.  MacAuley,  of  Chicago 

Mr.  Morse.  What  per  cent  of  the  butterine  bnsihess  do  the  packers 
control?   That  is,  do  they  do  themselves? 

Mr.  Edward  F.  Swift.  I  do  not  know.  I  have  never  seen  any 
figures  on  that. 

Mr.  G.  F.  Swift,  Jr.  I  do  not  know.  There  are  bigger  people  right 
along— individual  bigger  people  in  the  butterine  business  than  any 
cme  packer.  I  do  not  know  what  per  cent  the  total  of  the  packers 
would  be  against  the  total  of  the  others  that  are  in  the  butterine 
business. 

Mr.  Tbatnchu  The  extent  is  exceedingly  less  than  one-half. 

Mr.  Edward  F.  Swut.  The  conmiercial  fertilizer  business,  the 
pickers  are  smaller  than  one-h&lf.  The  American  Agricultural 
Chmnical  Co.,  the  Virginia  &  Carolina  CSiemical  Co^  tiiose  are  the 
bigger  ones.  Tlie  glue  business  is  the  same  way.  The  packers  are 
not  Dig  factors  in  that;  the  American  Glue  Co.  and  the  United  States 
Glue  Ca  and  various  smaller  glue  ocnmpanies  throughout  the  United 
States. 

Mr.  Morse.  Mr.  Swift,  do  you  agree  that  your  books  at  the  pres- 
ent time  show  the  fair  value  of  your  assets?  Is  the  value  as  thevein 

stated  too  high  or  too  low,  and  why  ? 
Mr.  Edward  F.  Swift.  We  consider  our  values  too  low. 

Mr.  Morse.  On  what  basis? 

Mr.  Edward  F.  Swift.  Proper  appreciations  for  our  real  estate 
that  we  bought  30  or  perhaps  40  years  ago  has  not  been  taken  up. 
Also  that  it  would  cost  a  great  deal  more — at  least  50  per  cent  more — 
to  replace  our  buildings  than  we  carry  on  our  books. 

Mr.  Morse.  Your  books  to-day  show  tlie  value  without  any  writ- 
ing up  the  real  estate  that  you  purchased  years  ago— 30  years  ago, 
as  you  just  stated? 

Mr.  £dwaiu>  F.  Swift.  They  did  in  our  last  financial  Stetement. 

Mr.  MoBSB.  Since  that  time  have  you  written  up  those  values?  . 

Mr.  E0WAXD  F.  Swirr.  We  have  to  some  eztent--to  a  partial 
extent. 

Mr.  Morse.  In  dollars,  how  much  is  it? 

Mr.  Edward  F.  Swift.  You  are  talking  about  land? 

Mr.  Morse.  Yes;  land  only. 

Mr.  Traynor.  The  figure  that  we  put  on  the  books,  as  I  under- 
stand it,  included  part  of  the  appreciation  of  both  land  and  build- 
ings. What  we  call  "  real  estate  "  includes  all  those  things,  up  to— 
since  the  date  of  our  last  statement  we  have  put  an  item  on  our  books 
which  represents  a  part  of  the  appreciation  of  our  physical  assets. 

Mr.  Morse.  By  "  physical  assets,"  you  mean  lands  ? 

Mr.  Tratnor.  Lands,  buildings,  machinery,  and  equipment. 

Mr.  Morse.  Lands,  buildings,  machinery,  and  equipment! 

Mr.  Traynor.  Yes. 

Mr.  Morse.  In  dollars,  how  much  was  that? 
Mr.  Chafejn.  $82,000,000. 

Mr.  MoBsa  On  what  did  you  base  your  valuation? 
Mr.  CHAniH.  Of  that  8S  miUuxn? 
Mr.  McasB.  Yes. 

Mr.  Gbaiuk.  On  what  did  we  base  that  88  milBoiil 


MaXIMUM  PBOFIT  LDGTAXION  OK  WUtMKQUmO,  nTDUBTBT.  49 


>- 


y 


y 


y 


Mr.  MoBSE.  Yes. 

Mr.  Tbatnob.  A  preliminary  report  from  tiie  American  Appraisal 
Co.,  who  were  making  an  appraisal  of  our  properties  at  that  time. 

Mr.  MoRSB.  As  of  what  date  did  they  place  these  values  on  ymir 
property? 

Mr.  Traynor.  January  1,  1914. 

Mr.  Morse.  Did  they  consider  replacement  values  or  cost  values, 
or  just  how  did  they  figure  these  values?   On  what  basis? 

Mr.  Traynor.  The  replacement  values,  depreciated  to  that  date. 

Mr.  Morse.  When  you  say  "replacement  values,"  do  you  mean 
values  of  1916  and  1917,  depreciated  to  1914? 

Mr.  Traynor.  No  ;  I  mean  the  cost  of  reproducing  new  at  January 
1,  1914,  and  discounting  for  the  depreciation  by  the  life  of  the  buUd- 
inc. 

Mr.  MoBSE.  How  much  was  that  did  you  say  in  per  cent,  if  you 
know  it? 
Mr.  Tbatnob.  I  don't  know  it. 
Mr.  Morse.  In  dollars! 

Mr.  Tbatnob.  I  don't  know.  As  I  say,  this  is  an  estimate,  as 
they  had  not  completed  their  reports  at  tnat  time.  In  6ust,  tiiey 
have  not  yet,  but  they  gave  us  a  forecast  that  warranted  us  in  using 
this  figure. 

Mr.  Chafuxt.  This  figure  is  to  be  adjusted  when  we  have  a  final 
appraisal? 

Mr.  Tbatn<».  Yes;  it  will  probf^)ly  be  considerably  more  thim 
that. 

Mr.  Morse.  What  was  the  date  of  this  entry  ? 
Mr.  Traynor.  Sometime  in  December,  1917. 
Mr.  Morse.  You  have  been  reporting  to  Mr.  Chase  on  your  in- 
vestment, these  increased  values? 
Mr.  Traynor.  No  ;  we  made  some  note  of  it. 

Mr.  Chaplin.  We  excluded  that  in  the  notation  on  the  statement. 
Mr.  Chase.  It  was  put  in  and  taken  out. 

Mr.  Chaplin.  I  might  say  that  that  is  a  matter  that  is  to  be  up 
to  the  Food  Administration  for  a  vote.  The  question  of  equalizing 
the  values  of  fixed  assets  as  between  the  large  packers. 

Ifr.  MonsB.  Well,  you  said  something  about  some  additional  ap- 

Sreeiation  that  you  thought  you  were  entitled  to.  Now,  on  what 
o  you  base  that  f 

Mr.  Chaplin.  Base  it  on  present-day  values. 
Mr.  MoBSB.  In  other  word^,  on  1918  vidues  ? 
Mr.  Tratnob.  Do  you  say  that  we  are  entitled  to  that? 
Mr.  Chaflin.  No. 
^  Mr.  Morse.  Yon  said  you  thought  you  were  entitled  to  an  addi- 
tional amount. 

Mr.  Traynor.  Yes.  That  is  correct.  We  think  that  the  final  re- 
port from  the  appraisal  by  the  American  Appraisal  Co.  will  show 
that  instead  of  $32,000,000,  we  will  have  a  greater  sum  as  represent- 
ing the  additional  value  of  these  properties  at  January  1,  1914,  ar- 
rived at  in  the  manner  I  have  described  to  you.  In  other  words,  this 
$32,000,000  is  a  conservative  estimate. 

Mr.  Morse.  Your  books  show  the  cost  of  these  properties,  do 
they  not?  r  r 

Doc.  110, 66-1- 


50     UAXmVU  PROFIT  LIMITATION  Qfi  lOAT-VAOiUlIG  INDUfi^TRY* 

Mr.  Traynor.  Yes. 

Mr.  Morse.  Do  you  expect  at  some  time  to  be  allowed  this  $32,- 
000,000  and  place  that  among  your  capital  invested  in  these  various 
classes  in  your  business! 

Mr.  Tratnor.  Yes. 

Mr.  Edward  F.  Swift.  May  we  make  a  general  statement! 

Mr.  Morse.  Yes;  certainly. 

Mr.  Tratnor.  As  between  the  other  packers  subject  to  this  con- 
trol and  ourselves,  we  have  felt  that  we  were  at  a  disadvantage, 
because  of  the  fact  that  our  properties  were  on  our  books  at  cost 
and  that  we  had  liberty  to  appreciate  them  as  we  went  along  by 
reserves,  whereas  some  of  the  packers  had  had  their  properties  re- 
appraised and  had  put  their  properties  upon  their  books  at  the  real 
appraised  vmlue,  so  that  Bome  companks  with  ho  bigger,  or  perhaps 
not  as  large  a  business  as  oursy  had  larger  investment  accounts.  At 
lea^  proportionately  larger,  and  we  thought  that  on  that  aooount 
we  are  entitled  to  at  least  an  equalization  with  the  others.  Now, 
we  made  a  mortgage  the  1st  of  February,  1914,  at  which  time  we 
had  an  appraisal  made;  not  as  detailed  a  one  as  we  have  had  re- 
cently made  by  the  American  Appraisal  Co.,  but  an  appraisal  by 
an  appraisal  company  representing  the  trustees,  who  were  well  sat- 
isfied at  that  time  with  the  values  of  our  properties;  that  is,  thev 
were  considerably  above  the  amounts  on  our  books,  and  for  which 
bonds  were  authorized. 

Mr.  Morse.  Your  business  has  increased  yery  rapidly  lately? 

Mr.  Traynor.  Yes. 

Ifr.  Morse.  Probably  has  doubled  the  last  three  or  four  years, 
hasn't  it! 

Mr.  G.  F.  Swift,  Jr.  In  tonnage ;  not  money,  but  in  tonnage. 

Mr.  Morse.  You  have  had  to  make  additions  to  your  plants  in 
order  to  take  care  of  this  increased  business  the  past  three  or  four 
years! 

Mr.  Tratnor.  Oh,  yes. 

Mr.  MoBSB.  Have  you  any  idea  to  what  extent,  in  dollars! 

Mr.  ChafiiIN.  In  1917  there  was  $7,000,000  charged  to  inTestment 
aocount^  The  raevious  year  was  somewhat  less. 

Mr.  Motto.  Tour  plant,  on  acooimt  of  thia  inomse,  is  greatly 
crowded  at  the  present  time  ? 

Mr.  G.  F.  Swot,  Jr.  The  increased  hudness! 

Mr.  Morse.  Yes. 

Mr.  G.  F.  SwnT,  Jr.  Yes;  at  times.  Especially  our  storage  la^ 

duties. 

Mr.  Morse.  You  are  not  probably  operating  as  efficiently  now  as 
you  were  three  or  four  or  five  years  ago,  on  account  of  your  largely 
increased  business  and  lack  of  facilities  and  things  of  that  kind? 

Mr.  G.  F.  Swift,  Jr.  Well,  I  would  not  say  there  was  any  great 
difference.  There  might  be  some  slight  difference.  Possibly  some 
things  are  not  being  done  as  efficiently  from  the  fact  of  the  expense 
standpoint  on  account  of  going  outside  for  storage  and  extra  switch- 
ing charges,  and  one  thing  or  another. 

Mr.  Morse.  That  is  what  I  mean.  Not  being  arranged  as  effi- 
ciently as  it  could  have  been  if  you  had  had  room  and  facilities  to 
inake  an  ample  plant! 


UAJOUmi  PROFIT  UUTUmOS  OK  MBAT-PACKIirO  INDX7SIBY.  51 


Mr.  G.  F.  Swift,  Jr.  Yes ;  and  the  money. 

Mr.  Morse.  And  therefore,  of  course,  your  expenses  are  increased, 
to  a  certain  extent.  Isn't  that  true  ? 
Mr.  G.  F.  Swift,  Jr.  Yes ;  that  is  true. 

Mr.  Morse.  If  you  had  to  build  over  in  a  new  plant  to  take  care  of 
your  business,  you  would  not  have  had  it  arranged  the  same  as  at 
the  present  time,  would  you? 

Mr.  G.  F.  Swift,  Jr.  I  would  not  say  that  there  would  be  much 
difference  in  the  arrangement.  I  think  it  is  largely  a  question  of 
increasing  the  facilities. 

Mr.  Morse.  Well,  I  mean  more  efficient  arrangement;  switching 
facilities,  refrigeration  facilities,  and  things  of  that  kind.  You 
know  one  plant  can  be  arranged  so  that  it  is  very  efficient  and  things 
are  handy  to  each  other,  and  then  again  a  plant  may  be  arranged  so 
that  you  have  to  go  all  around  it  in  order  to  reach  your  various  de- 
partments where  you  want  to  put  the  stuff,  and  the  latter  is  not  as 
efficient  as  the  former.  That  is  true! 

Mr.  G.  F.  SwiFT^  Jr.  Yes;  but  our  plants  are  pretty  well  located 
and  pretty  well  adjosted.  .  All  we  need  m  a  few  more  biiildings  or  a 
few  higher  ones.  * 

Mr.  M<»SB.  Do  you  think  the  packers  could  do  business  scmtwhim 
else  cbeaper  than  fiiey  could  in  Chicago  if  they  had  the  plants !  For 
instance,  you  take  a  small  town,  or  if  you  railt  a  town  like  some 
other  of  our  industries  have  d<me,  and  put  up  ample  plants,  dont 
you  believe  that  you  could  operate  more  cheaply  and  efficiently  than 
you  do  right  here  in  Chicago?  You  would  not  requue  the  same 
amount  or  assets  in  dollars  that  you  now  require  <m  aooount  of  the 
high  price  of  land  and  buildings  here  in  Chicago. 

Mr.  Edward  F.  Swift.  May  I  answer  that! 

Mr.  Morse.  Yes. 

Mr.  Edward  F.  Swift.  My  opinion  is  that  we  can  not  operate  any 
cheaper  at  any  other  point  for  the  reason  that  the  packing  business 
has  been  a  business  of  evolution  and  has  been  constantly  improved 
on,  both  methods  and  machinery. 

Mr.  Morse.  Could  you  have  the  same  improved  methods  and 
machinery  in  another  place  that  you  have  got  here  in  Chicago  ? 

Mr.  Edward  F.  Swift.  Could  we  have  the  same? 

Mr.  Morse.  Yes:  any  reason  why  you  could  not? 

Mr.  EbwARD  F.  Swut.  No. 

Mr.  MonEOB.  Isnt  it  a  fact  tiiat  the  principal  drawback  to  establisb- 
inff  the  iBdnstcy^in  a  small  town  is  on  account  of  the  ^bor  question! 
Mr.  Edwasd  F.  Swot.  What  is  that  question! 
(Question  read.) 

Mr.  MoBSB.  Do  yom  think  that  wouM  be  m  factor! 

Mr.  Edward  F.  Swift.  The  labcnr  qnesticm! 

Mr.  MossB.  Yes;  if  you  went  to  a  smaller  place. 

Mr.  Edwakd  F.  Swot.  No;  I  tbkok  not.  I  see  no  advantage  in  a 

small  town. 

Mr.  Morse.  Well,  you  have  studied  over  that  pnqposition,  have 

you,  Mr.  Swift? 

Mr.  Edward  F.  Swift.  Yes. 

Mr.  Morse.  And  you  do  not  think  that  the  packing  industry  would 
be  better  off,  as  far  as  profits  are  concerned,  and  the  general  puUie 
and  aU  around|  as  if  they  went  to  a  smaller  place  I 


6S   MAznfiix  PB0m  MMSiimom  cm  ifBAT-PACKnra 


Mr.  Edward  F.  Swut.  No.  I  think  a  large  place  has  a  distinct 
advantaffe  in  the  way  of  Uie  labor  standpoint.  General  terminals; 
getting  3ie  raw  material,  and  so  forth. 

Mi\3foR8B.  I  do  not  kiiow  as  my  opinion  amounts  to  much,  but  I 
think  it  would  be  a  distinct  advantage,  if  it  was  not  for  your  termi- 
nals— there  is  where  there  would  be  an  ad  antage. 

Mr.  Edward  F.  Swift.  Labor  always  flocks  to  the  centers.  Espe- 
cially in  the  winter,  labor  flocks  to  the  cities.  Ours  is  practically  a 
floating  supply  of  labor,  which  you  can  not  work  to  advantage  in  a 
small  town.  They  vary  here  20  or  30  per  cent  in  a  week.  It  is  not 
unusual  at  all  to  have  two  or  three  weeks  heavy  receij)ts.  The  product 
has  to  be  handled.  The  next  two  or  three  weeks  will  be  lighter  re- 
ceipts. Our  business  is  not  steady  every  day  in  the  we^,  life  a  steel 
mill  or  something  like  that,  and  we  have  to  have  a  supply  of  labor 
that  is  floating,  to  a  very  oeqofliderable  extent. 

Mr.  CHAniN.  Then  ako  the  distribution  of  the  prodncta.  Take 
all  thi  railroads,  spreading  all  over  the  country  

Mr.  McnosE.  Well,  that  is  what  I  said  before. 

Mr.  Camw.  Now  ^  yos  have  in  mind  just  the  Chiea|p>  situa* 
lion?  • 

Mr.  Morse.  Why,  I  had  in  mind  the  Chicago  situation  here,  that 
YOU  might  operate  more  efficiently  and  cheaper  if  your  buildings  had 
Deen  arranged  better  for  you. 

Mr.  Edward  F.  Swift.  May  I  answer  that  by  saying  that  they  are 
constantly  being  rearranged. 

Mr.  Morse.  That  may  be,  but  take  a  section  which  is  as  crowded  as  - 
it  is  here,  you  can  not  make  out  as  well  even  if  you  are  constantly  re- 
arranging them,  than  if  you  had  the  room  you  want. 

Mr.  G.  F.  Swift,  Jr.  You  have  all  the  room  you  want  right  here 
in  Chicago.  The  evolution  of  the  business  has  been  to  go  up  in  the 
air.  Take  that  building  that  you  see  over  there,  seven  stories  high. 
[Indicating.]  It  used  to  be  two  stories.  Like  this  one  here,  when  we 
bought  it.  If  we  had  had  the  land  next  to  it  we  would  have  built 
the  building  higher.  We  would  not  have  biuM;  two  buildings.  We 
would  have  gone  up. 

Mr.  MoBSB.  The  propos^cm  is,  you  wooAd  not  have  needed  such  a 
large  investment. 

Mr.  Chapun.  What  would  we  do  withiliis  investment  here? 

Mr.  Tkatk(».  It  is  prettjr  expensive  to  reprodnoe  a  piant  the  sise 
of  ^bilL  any  place  now. 

Mr.  Mqwpi.  Well,  that  is  probably  trve.  I  was  only  diseoMiig  this 
from  an  economic  standpoint. 

Mr.  Chaplin.  This  is  only  a  small  part  of  the  factory  here  in 
Chicago.  The  bosBHSB  is  all  over  the  country.  This  is  only  a  small 
part  of  it 

Mr.  Edward  F.  Swift.  You  know  that  we  have  a  number  of  other 
plants— St.  Paul,  Fort  Worth,  St.  Joseph,  and  Denver. 

Mr.  Whipple.  The  rules  and  regulations  call  for  three  classes. 
Now  do  you  believe  it  is  possible  to  accurately  divide  your  business 
and  investment — ^your  profits  into  those  three  classes! 

Mr.  G.  F.  SwiTT,  Jr.  Practically  so ;  yes. 

Mr.  Whipple.  You  think  it  can  be  divided  so  that  there  is  so  much 
proit  in  class  1  and  so  much  in  class  2  and  so  much  in  class  31 


MAXIMUM  FfiOfXX  UMLXAXlOJSi  ON  MSAT-FACSJNG  LSTDUSTBY.  53 


Mr.  G.  F.  Swift,  Jr.  Yes,  for  all  practical  purposes;  yes,  sir. 

Mr.  Chaplin.  Approximately. 

Mr.  Whipple.  How  near  would  you  say  the  approximation  ran? 
Is  the  line  of  demarcation  very  clear,  in  other  words,  or  does  it  grow 
very  hazy  in  some  sections? 

Mr.  Chaplin.  It  is  very  clear  in  most  cases. 

Mr.  G.  F.  Swift,  J r.  And  the  fact  that  we  do  it. 

Mr.  Morse.  But  you  do  not  get  actual  results. 

Mr.  G.  F.  Swift,  Jr.  We  get  preety  near. 

Mr.  Mobsb.  Well,  pretty  near  la  not  wntomL  Whm  I  used  the  ward 
^actaal"  I  meant  ooorrect;  definite. 

Mr.  O.  F.  Swut,  Jr.  I^tiiink  we  get  it  ftctnal  enen^  for  all  prac- 
tical purposes. 

Mr.  Morse.  You  may  get  it  as  near  as  you  can,  but  it  is  not  actuaL 
Mr.  G.  F.  SwiPT,  Jr.  For  all  practical  purposes.  We  pay  depart- 
ment heads  for  results,  and  if  we  feel  that  he  is  not  producing — ^he 
can  not  produce  them  unless  he  has  got  an  actual  practical  division 
of  the  expense.  That  is  what  we  ba^  salaries  and  these  tilings 
on. 

Mr.  Chaplin.  Take  the  big  ends  of  the  business;  the  commercial 
fertilizer  business  and  the  tanning  business.  That  is  entirely  dis- 
tinct; no  connection  at  all.    Those  are  all  the  big  things. 

Mr.  Whipple.  You  mean  to  say  that  you  think  for  the  purposes 
of  these  rules  and  regulations  you  can  so  divide  all  the  phases  of 
your  business  as  to  live  within  the  regulations  set  forth  here? 

Mr.  Chaplin.  Yes,  sir. 

Mr.  Whipple.  Your  costs  in  your  various  departments  you  know 
that  is  in  your  various  classes,  and  you  know  therefore  if  you  know 
yonr  cost  and  know  your  income,  you  know  your  actual  profit  for 
tiiepmod. 

jM^Osaiuk.  Yes,sir. 

Mr.  Whiffub.  Now  do  you  strike  any  difficulty  in  the  transfer  of 
tliose  by-products  from  one  ^paHanent  to  the  oHier  or  from  one 
section  to  the  other  ? 

Mr.  CHAFLnr.  No.   We  have  that  transferred  at  the  full  market 

price. 

Mr.  Whipple.  Transferred  at  the  full  market  price.  Do  you  find 
any  difficulty  in  arriviag  at  the  full  market  price  for  all  of  your 

various  products? 

Mr.  Chaplin.  Oh,  there  are  some  minor  items  that  there  might  be 
same  questions  on,  but  the  big  things  are  all  very  clear. 

Mr.  Whipple.  The  big  things  are  all  very  clear,  as  far  as  hides, 
fats,  and  things  like  that,  you  can  divide  those  absolutely? 

Mr.  Chaplin.  Yes,  sir.  They  have  a  stated  market  price. 

Mr.  Whipple.  The  assets  shown  on  the  books  of  subsidiary  com- 
panies or  branch  houses,  are  they  in  accordance  with  the  same  gen- 
eral plan  as  the  plan  of  showing  up  your  investments  on  the  parent 
company's  books?   Can  they  be  divided  into  those  sagie  classes? 

Mr.  Chaplin.  Yes. 

Mr.  Whipple.  Now  would  you  have  any  difficulty  under  the  ex- 
isting conditions,  of  making  up  consolidated  balance  sheets — de- 
tailed consolidated  balance  sheets  which  would  show  all  of  those 
three  classes! 


64  MAxnfmc  pbofit  LncnrAmK  on  ms^t-paokiko  vsdv&tby. 


Mr.  Chafuk.  a  consolidated  balance  sheet? 

Mr.  Whipple.  Yes. 

Mr.  Chaplin.  No,  I  think  not. 

Mr.  Tratnor.  That  is,  showing  the  assets  in  the  three  classes? 

Mr.  Whipple.  Yes,  enumerating  the  assets  which  appear  in  the 
three  classes  in  your  home  office,  your  branch  offices,  and  in  your 
subsidiary  companies,  so  that  in  case  you  wanted  to  make  up  a  con- 
solidated balance  sheet  for  all  of  your  subsidiary  companies,  you 
could  fall  into  that  class?  In  other  words,  this  uniform  balance 
sheet  which  a  gentlemen  interested  in  a  uniiorm  system  is  finished 
as  they  desire  it,  you  think  you  can  fall  right  into  line  with  that, 
with  your  books  in  their  present  condition  t 

Mr.  Chapun.  There  would  be  some  things  that  would  have  to  be 
based  on  pro  rata  diTisions. 

Mr.  Whipklb.  But  do  yon  think  that  with  the  proper  amount  of 
inyestiffatiim  there  is  anyuiing  there  which  can  not  be  detenninedf 

Mr.  Chaflim.  No.  -  • 

Mr.  Whipple.  You  believe  that  by  proper  engineering  facilities 
and  accounting  facilities  you  could  determme  that  absolutely? 
Mr.  Chakjn.  Yes,  sir. 

Mr.  Whipple.  Now,  does  the  same  thing  apply  to  your  nominal 
accounts?  That  is,  I  mean  to  say,  your  profit  and  loss  statements? 
Could  you  make  up  a  detailed  profit  and  loss  statement  upon  all 
your  branch  houses  and  subsidiary  companies,  in  a  detailed  profit  and 
loss  statement  with  the  parent  company?  For  instance,  showing  . 
your  gross  sales  and  showing  the  net  sales  and  the  cost  of  the  goods 
sold  and  the  items  that  enter  into  it,  and  your  administration  in 
general  expense  as  a  whole,  in  net  figures  on  that  profit  and  loss  state- 
ment? .         «  M 

Mr.  Chapmn.  Well,  that  is  rather  an  involved  question.  Some  of 
these  expenses,  of  course,  have  to  be  prorated.  Oup  administrative 
expense  nas  to  be. 

Mr.  WmFPUB.  Wdl,  of  course,  witli  the  exertion  of  the  pro- 
ration, you  feel  that  could  be  gotten  out  in  detailed  iona  without 
your  present  system  of  accountsTiaving  to  be  revised  ? 

Mr.  CHAiiiK.  No,  I  tliink  we  can  do  it.  As  I  said,  there  has  to  be 
some  proratinjg  of  some  things.  We  have  to  determine  what  is  the 
proper  basis  &t  splitting  certain  things  up. 

Mr.  Whipple.  You  speak  of  proration.  Does  your  term  "  prora- 
tion" apply  only  to  these  expenses  such  as  administrative  expense, 
which  we  know  in  all  concerns,  has  to  be  made  up  on  some  basis 
which  everybody  considers  equitable,  or  are  there  some  items  which 
would  have  to  be  prorated?   Would  your  labor  have  to  be  prorated? 

Mr.  Chaplin.  No.  Take  the  items  of  getting  the  direct  cost  in 
the  case  of  our  branch  houses.   We  have  the  actual  result. 

Mr.  Whipple.  Do  those  accounts  of  your  branch  houses  fall  right 
in  line  with  those  of  your  old  parent  company?  That  is,  are  they 
modeled  on  the  same  general  plan  as  your  accounts  here  are  kept? 

Mr.  Chaplin.  Yes,  sir. 

Mr.  Whipple.  So  that  at  the  end  of  a  year  op  the  end  of  a  period 
you  could  tell  what  your  gross  sales  wete  in  any  particular  place! 

Mr.  Ghaflhi.  Tes,  we  know  the  gross  sales  ai  aU  oar  branchea  or 
all  our  plants;  but  we  have  not  got  the  gross  sales  in  each  d^Murt- 
ment. 


MAXIMUM  TOOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  55 


Mr.  Whipple.  But  on  your  general  books  here  you  have  no  con- 
trolling account  which  would  show  those  items  in  your  brancli 
houses?  Your  branch  houses  and  subsidiary  companies  I  take  it 
are  held  by  one  control  account  ? 

Mp.  Chaplin.  No;  we  have  probably  four  or  five  accounts  cover- 
ing our  branch  houses.  We  have  a  capital  account  and  a  building 
and  madiinerv  account  and  an  account  for  the  goods  that  we  ship 
them.  Brobably  six  or  eight  aocounte  l^t  would  constitute  the 
total. 

Mr.  Wmm^.  Do  you  keep  control  of  branch-lK>use  sales? 
Mr.  ChapiiIN.  No;  we  compile  that. 

Mr.  Whipple.  You  compile  that  from  the  branch, house  reports? 
You  get  them  by  one  source  or  another  and  change  your  books  so 
as  to  establish  controls  on  your  home  office  books,  or  else  by  a  system 
of  auditor's  reports  and  you  have  no  need  of  these  details  whidi 
would  be  necessary  under  this  regulation  here? 

Mr.  G.  F.  Swift,  Jr.  Bring  them  right  back  to  their  respective 
departments.  In  fact,  some  of  our  competitors  do  that.  They  bring 
a  ham  sold  at  a  branch  house  back  to  their  same  house. 

Mr.  Whipple.  Now  I  take  it  that  your  balance  sheets  show  that 
a  considerable  part  of  the  capital  invested  in  your  business  is 
largely  borrowed  money  ? 

Mr.  Edwaed  F.  Swift.  Yes.  There  is  no  doubt  about  that,  I  am 
sorry  to  say. 

lur.  Wmpnjfi.  How  much  is  borrowed  money  costing  you  at  the 
present  time!  "^HH^ 
Mr.  Tbatkok.  Six  per  cent. 

Mr.  WmppLE.  On  this  borrowed  money  do  you  consider  you  are 
entitled  to  make  the  same  rate  of  return  as  you  are  on  your  own 
investment? 

Mr.  Edward  F.  Swift.  We  understand  it  that  way,  certainly. 

We  all  understand  it  that  way. 

Mr.  Whipple.  And  considerable  capital  is  represented  by  ac- 
cumulated earnings.  Do  you  also  consider  that  is  entitled  to  the 
same  return  as  your  original  investment  in  the  business? 

Mr.  Traynor.  When  you  say  entitled  to,  do  you  mean  under  tliis 
private  control? 

Mr.  Whipple.  No,  I  mean  in  your  own  minds. 

Mr:  Traynor.  In  our  opinion  of  our  business,  it  should. 

Mr.  Chaplin.  We  figure  there  ought  to  be  an  earning  on  every  dol- 
lar of  value  that  is  invested  in  the  business,  no  matter  where  it 
came  from. 

Mr.  Whipple.  In  other  words,  your  original  investment  on  which 
you  ran  a  long  chance  and  took  big  chances  in  establishing  a  new 
enterprise,  is  entitled  to  no  more  earning  than  the  money  which 
has  been  paid  in  recently,  and  which  if  necessary  you  ooold  go  out 
and  float  a  bond  issue  to  cover  probably  at  6  per  cent  ? 

Mr.  Edwabo  F.  Swivt.  Yes;  we  ocmsidmd  we  are  entitled  to  the 
same  rate. 

Mr.  Whipfub.  That  is,  you  are  entitled  to  the  difference  between 
what  you  pay  for  money  and  what  you  make  out  of  it  ? 

Mr.  Edward  F.  Swift.  A  bond  issue  can  not  be  floated  for  6  per 
cent.  One  company  put  out  one  that  cost  them  8  per  cent.  Proc- 
ter &  Gamble  put  out  one  that  cost  them  10  per  cent.  The  fact  of 


66    MAimUX  IBOilT  UMSTAimS  on  MBAT-PAOKniO  imnifiT. 

a  person  bonowing  money  at  6  per  cent  is  not  a  fair  rate,  because 
you  know  you  have  to  have  a  bank  account  and  you  have  to  have 
eonnections  and  all  that,  to  be  able  to  borrow  money. 

Mr.  Morse.  Yon  mean  6  per  cent  purity  would  have  to  be  con- 
siderably below  par  ? 

Mr.  Edward  F.  Swift.  T  mean  a  6  per  cent  security  about  92  cents 
a  share.  It  averages  to  be  paid  in  three  years.  I  know  that  that 
money  costs  me  over  8  per  cent. 

Mr.  Chaplin.  If  you  go  to  the  bank  and  borrow  $100,000  they 
expect  you  to  leave  about  fifteen  or  twenty  thousand  of  it  as  a 
balance.  You  only  really  get  about  $80,000  actual  money  in  that 
case. 

Mr.  Morse.  Some  30  years  ago  your  capital,  you  said,  was  about 
$300,000,  and  at  the  present  time  it  is  approximately  fifty  millions. 
Has  that  increase  been  made  up,  most  of  it,  through  earnings  which 
YOU  have  capitalized  or  will  capitalize,  or  is  it,  the  greater  part  of 
It,  new  money  that  has  been  .inyested  in  the  business  I 

Mr.  Tbatnor.  Well,  the  capital  will  be,  when  this  present  increase 
is  effective,  $150,000,000.  All  of  that,  with  the  exception  of 
$25,000,000,  which  is  the  reoei^  stock  divid^id,  haa  he^  paid  in  in 
cash,  100  coits  on  the  dollar. 

Mr.  MoBSB.  That  is  what  I  want  to  get. 

Mr.  Edward  F.  Swift.  One  himdred  and  twenty-five  million  out 
of  one  hundred  and  fifty,  at  par. 

Mr.  MoBSE.  Then  there  is  absolutely  no  water  at  all,  is  there? 

Mr.  Traynor.  No,  sir.  On  the  contrary,  we  have  not  an  item 
of  good  will  among  our  assets,  trade-marks  or  anything  of  that  kind. 
Surely  the  good  will  of  this  business  this  last  year  amounting  to 
$875,000,000  in  sales  is  an  asset. 

Mr.  MoBSE.  You  have  absolutely  no  so-called  "water"  in  your 
capital  ? 

Mr.  Traynor.  Not  one  drop. 

Mr.  Tator.  Just  at  that  point,  you  say  that  all  of  this  money  has 
been  paid  back,  but  to  what  extent  have  you  issued  dividends  out  of 
the  surplus  simultaneously  with  a  new  payment  in  of  cash  for  stock 
issued  ? 

Mr.  Tbatnob.  Paid  back! 

jBid[r  ^Fator  Y*e8. 

Mr.  Tbatkob.  I  said  that  all  of  the  capital  had  been  paid  in  in 
.  cash  with  the  exception  of  $25,000,000* 

Mr.  Tatob.  You  are  technically  correct  I  know  that  is  true.  But 
I  also  recollect  a  dividend  two  or  three  years  ago  of  $26,000,000  or 
$33,000,000,  which  was  it  ? 

Mr.  Tbatnor.  $25,000,000—38  per  cent. 

Mr.  Tatob.  Now,  at  that  time  ^ou  paid  a  cash  dividend  and  ap- 
proximately at  the  same  time  you  issued  new  stock! 
Mr.  Traynor.  To  those  who  wanted  to  buy  iti 
Mr.  Tator.  To  those  who  wanted  to  buy  it? 

Mr.  Traynor.  Yes,  sir. 

Mr.  Tator.  And  to  that  extent  that  was  capitalizing  the  surplus — 
not  technically  speaking,  but  practically  it  amounted  to  that,  didn't 
it? 

Mr.  Traynor.  No.  No  more  than  6  or  7  or  8  per  cent  that  we  paid 
in  all  those  years. 


Mr.  Tator.  I  know  your  viewpoint  of  that.  But  here  is  what  it 
amounts  to.  You  paid  $25,000,000  in  dividends  and  the  same  stock- 
holders had  a  right  to  turn  it  hack  and  take  stock? 

Mr.  Traynor.  Yes. 

Mr.  Tator.  And  the  majority  of  them  did  that? 
Mr.  Traynor.  Yes. 

Mr.  Tator.  Practically  all  of  them  did  it.  I  say,  to  what  extent 
has  your  capital  increased  in  that  way  prior  to  that  last  $25,000,000 
m  1916  or  1917? 

Mr.  Edward.  F.  Swift.  That  could  be  arrived  at  by  getting  our 
total  dividend. 

Mr.  Traynor.  I  have  not  it  all  in  mind,  but  that  is  the  only  one 
in  my  experience  with  the  company,  which  covers  17  years.  That 
was  a  cash  dividend  and  it  was  a  cash  subscription  of  stock.  It  was 
not  a  stock  dividend. 

Mr.  Tatob.  I  agree  with  you  technically  that  is  true,  but  prac- 
tically it  is  not. 

Mr.  T^TNOB.  No ;  that  is  wrong.  If  t^ey  did  not  want  to  buy  the 
stock  with  it  they  could  have  bought  an  automobile. 

Mr.  MoBSB.  True,  they  had  the  option,  but  the  practical  e£fect  of  it 
was  that  you  supplied  the  cash  to  these  people  m  order  to  buy  the 

automobile  if  they  wanted  to  do  it. 

^  Mr.  Tbatnor.  We  paid  $25,000,000  cash  dividend  and  at  the  same 
time  we  authorized  an  issue  of  $25,000,000  worth  of  stock  to  the 
stockholders  of  record  who  wished  to  avail  themselves  of  an  oppor- 
tunity to  buy  it. 

Mr.  Morse.  And  if  a  man  did  not  want  to  avail  himself  of  that, 
lie  did  not  do  it,  as  you  say.  He  bought  an  automobile,  or  he  spent 
the  money,  or  he  kept  it? 

Mr.  Traynor.  Yes,  sir,  and  some  of  them  did. 

Mr.  Morse.  But  most  of  them  did  buy  stock ;  so  that  you  provided 
them  with  the  purchase  price  to  buy  these  new  shares? 

Mr.  Traynor.  If  they  wanted  to. 

Mr.  MoRSE.  That  is  the  practical  effect  of  it? 

Mr.  Edward  F.  Swift.  Notwithstanding  all  that  there  is  no  water 
in  the  stock;  not  a  penny's  worth  of  water  in  the  stock.  And  may 
I  say  that  up  to  that  time  we  never  paid  over  8  per  cent,  and  some- 
times only  6  per  cent  over  a  series  of  all  these  years,  and  if  anyone 
was  figuring  what  our  dividends  were  you  would  have  to  figure  it 
over  those  30  or  more  years. 

Mr.  Mobsb.  And  Mr.  Swift,  prior  to  the  time  which  you  raised 
vour  capital  to  one  hundred  million  instead  of  seventy-five  million, 
now  much  of  the  seventy-five  might  be  put  in  the  same  class  as  that 
twenty-five  million? 

Mr.  Edwam)  F.  Swift.  Never  over  8  per  c^t  in  any  am  year,  be- 
cause we  never  paid  over  8  per  cent  total. 

Mr.  Morse.  The  rest  of  the  capital  represented  money  paid  in? 

Mr.  Edward  F.  Swift.  It  did.  We  can  not  a^ree,  that  our  cash 
dividends  are  used  for  capitalizing  the  company,  because  a  man  gets 
$8  in  a  year,  he  has  the  chance  as  we  did  increase  our  stock  from  a 
smaller  amount  to  ten  or  fifteen  million  dollars,  that  man  never  got 
over  $8  a  year.  Now,  he  had  to  go  out  and  dig  up  the  other  $92  some- 
where outside  of  the  $8  he  got ;  and  you  can  not  consent  to  the  propo- 
sition that  our  dividends  are  capitalizing  the  company.   Our  divi- 


dends  have  only  been  a  very  reasonable  return  on  our  moner,  and 
States      ^'^c®™!  ^«        any  othmr  large  business  in  the  United 

Mr.  Chaplin.  I  would  like  to  cosk  Mr.  Tator  what  his  point  of 
view  IS  on  money  that  has  run  the  Ufe  of  the  business;  whetKer  that 

IS  entitled  to  the  same  profit  ? 
Mr.  Morse.  Suppose  that  Mr.  Whipple  asks  you  that  Question* 

since  you  have  asked  Mr.  Tator.  ^  ^ 

Mr.  Whipple.  I  have  asked  that  question  already.  I  do  not  think 
that  in  the  position  Mr.  Tator  is  in  he  is  competent  to  answer  that  at 
the  present  time,  because  it  is  a  question  for  the  commission  to 
decide,  and  there  is  no  man  here  representing  the  commission  who 
would  care  to  decide  that  question.  In  fact,  that  is  a  question  that 
wUl  be  put  up  to  the  commission  itself  to  decide,  and  always  has 
oeen* 

Mr.  CHAFLnf.  It  would  seem  that  a  dollar  from  one  place  or  a 
dollar  from  another  is  entitled  to  the  same  opportunity  to  earn.  One 
dollar  18  iM)t  any  different  from  another  one. 

Mr.  WmmjB.  Well,  there  are  different  views  on  that  among  good 
authontoes. 

Mr.  Edwabd  F.  Swivt.  May  I  say  something  about  that  in  con- 
nection with  other  phases?  j 

Mr.  Morse.  I  do  not  beliflfve  mjom  has  got  any  view  <m  that,  Mr 
dwift,atall.  ' 

Mr.  £dwaiu>  F.  Swut.  ,The  point  I  want  to  make  is  tiial  our  divi- 
dends must  be  spread  over  a  series  of  years. 

Mr.  Whipple.  There  is  (me  i^uestion  I  would  like  to  ask  in  con- 
nection with  this  work.  In  arriving  at  the  product  of  your  business, 
can  it  be  arrived  at  accurately  in  all  lines  or  in  certain  lines  for  a 
smaller  period  than  a  year,  or  a  complete  cycle  of  operaticms,  or  an 
order  to  do  the  business  justice,  must  the  profit  be  tak^  as  over  the 
whole  year? 

Mr.  Edward  F.  Swift.  I  think  it  is  very  necessary  to  take  a  whole 
year  for  the  reason  that  some  product  is  carried  at  least  six  to  eiffht 
months. 

Mr.  Whipple.    You  mean  that  you  have  seasonal  operations  which 
could  only  be  determined  by  looking  at  the  business  as  a  whole? 
Mr.  Edwakd  F.  Swift.    Yes,  sir. 

Ifc.  Whipple.  Then  in  order  to  form  a  conclusion  as  to  the  result 
the  busmees  of  any  packer  or  the  sale  of  any  packer  may  be,  you 
would  have  to  look  at  the  business  of  the  year  ?  v  > 

Mr.  Tbatnob.   Yes.  Six  months  would  mislead  you. 

Mr.  G.  F.  Swift,  Jr.  Yes.  Six  months  would  mislead  you  more 
than  it^ would  lead  you,  because  I  think  if  vott  will  look  over  you 
would  find  the  history  showing  that  where  dz  months  were  good  or 
bad,  in  seven  cases  out  of  ten  the  next  preceding  six  m<mths  wore  the 
opoosite. 

ih.  Whipple.  Well,  now,  would  you  as  packers,  or  would  the 
packera  as  a  whole,  welcome  a  ^stem  of  cost  finding  which  would 
be  uniform  for  all  of  the  companies  ? 

Mr.  G.  F.  Swift,  Jr.   It  would  be  very  satisfactory  to  us. 

Mr.  Whipple.  That  is,  if  the  commission  went  to  work  and  pi<^Bd 
out  and  got  in  some  and  threw  out  the  bad  in  otheiB,  and  picked  oat 


MAXJMXm  WM>ra?  tJUlTATlOK  0»  IIBAMACKIKG  IITDUSTEY.  69 

the  good  points  all  over  and  tried  to  thrust  that  system  upon  you, 
if  you  might  call  it  such. 

Mr.  Edwabd  F.  Swift.  It  is  a  matter  of  infcrpmation. 

Mr.  Chaplin.  Yes.  We  are  very  favorable  to  thfat. 

Mr  Whipple.  Now,  in  considering  the  return  on  the  capital  in- 
vested in  the  business,  or  the  net  worth,  or  however  it  is  to  be  deter- 
mined, it  is  usual  to  look  into  the  risk  or  the  extraordinary  hazards 
of  each  business.  Now,  has  this  business  any  extraordinary  hazards, 
and  in  connection  with  it  in  that  discussion,  just  as  much  as  possible 
leave  out  the  question  of  fluctuation  in  market.  Now,  the  fluctuations 
in  the  market,  we  understand,  are  a  large  factor  from  the  pomt  of  Uie 
packer.  Now,  just  keep  the  two  distinctions  separate.  Discuss  either 
one  as  much  as  you  want,  only  keep  the  two  distinctions  separate. 
That  is,  first  discuss  the  market  hazard ;  the  fluctuations  in  the  mar- 
ket, and  then  what  you  might  call  any  uninsurable  ^J^^ 
affect  your  assets ;  such  as  fire,  or  explosions,  or  an  a<*  of  God  wliieh 
would  affect  your  property  as  a  whole.  ,  ,  ^    ,    ^.       i.-  .  t 

Mr.  Edward  F.  Swdt.  The  first  is  the  market  fluctuation  which  1 
have  given  an  illustration  of,  considering  we  are  liable  to  show  a 
deprecation  of  $20,000,000  in  any  one  year  on  a  department  covered 
by  our  9  per  cent  rule.  About  the  hazard  of  lightning  or  fire  or  un- 
foreseen contingencies  that  should— that  is  very  apt  to  happen,  and 
it  is  very  apt  to  hit  oob  packer  harder  than  another.  One  might 
eecM)e,  and  another  one  might  get  severely  crippled.  Or,  m  other 
words  if  our  plants  at  Kansas  City  should  be  struck  by  a  cyclone,  or 
the  Kaw  River  should  overflow  and  practically  keep  us  from  oper- 
ating for  three  or  four  months,  we  are  at  a  very  serious  disadvantage 
in  ttudng  care  of  our  business,  and  our  trade  loss  would  be  something 

enormous.  .     ,  1 1  ,    j  j.- 

Mr.  Whipple.  Then,  your  loss  in  that  case  would  be  due  practi- 
cally to  the  ravage  of  the  flood  or  the  cyclone ;  practically  due  to  the 
idle  time  of  your  plant? 

Mr.  Edward  F.  Swift.  And  some  one  else  taking  our  trade  mean- 
time. 

Mr.  Whipple.  Loss  of  trade? 

Mr.  Edward  F.  Swift.  Loss  of  trade. 

Mr.  Whipple.  That  would  come  undeF  the  idle  tmie  of  your  plant! 
Mr!  Edward  F.  Swift.  No.  Hie  loss  in  trade  would  be  very  much 

more  important  ,      _x    x  tv 

Mr.  Whippml  The  loss  of  trade  would  be  m<m  important  Do  you 

think  it  would  be  more  unportant? 
Mr.  Edwasd  F.  Swdt.  It  would  be  more  miportant;  yes,  very  mi- 

portant  _      .    .  /i  j 

Mr.  Whippo:.  I  do  not  suppose  you  are  insured  against  iloods  or 
cyclonesontheKansasCity  plant,  are  you? 

Mr.  Edwabd  F.  Swift.  I  don't  know.  No;  I  think  not 
Mr.  Whipple.  But  all  of  your  buildings  and  machinery  are  cov- 
ered by  fire  insurance,  I  take  it? 
Mr.  Edward  F.  Swift.  Yes,  sir. 

Mr.  G.  F.  Swift,  Jr.  Just  a  point  on  the  insurance  there.  There 
are  at  the  present  time,  I  think,  we  are  at  an  unusual  estimate  on  our 
inpuranco  because  of  the  present  values  and  the  impossibility  to  in- 
sure our  lull  product.  For  instance,  now  a  certain  building  has  a 
limited  insurance  vidue.  You  can  only  insure  so  many  dollars'  worth 


60     lUXIlCTTM  PROFIT  LIMITATION  ON  MEAT-PACKINQ  INDUSTBY. 

of  product  mthut  building:.  With  those  values  you  can  not  <ret  full 
iiisiirance.  P^r  ins^^  ttie  capacity  of  a  building  under  normal 
tones  migbt  be  $400,000.  Four  hundred  thousand  dollars  is  as  much 
of  a  risk  tjiey  wjll  carry  on  that  builduior.  Under  the  present 
value  the  raiilding  v.l]  carry  $eOO,<X)0. 

Mr.  Edward  F.  Swut  Hay  I  say  that  we  cany  a  larger  stock 
than  ever  before  in  pounds ;  not  only  in  value  but  m  pounds?  Our 
stock  IS  larger  than  ever  before.  May  I  correct  a  statement  that  was 
made  awhile  ago  by  Mr.  Swift?  You  said  that  our  business  was 
"^"ch  larger  m  value  but  not  necessarily  in  tonnage. 

Mr.  G.  F.  Swift,  Jr.  I  did  not  mean  to  say  that,  if  I  did 

Mr.  Whippi^.  He  said  it  had  ahnost  doubled  in  valued  but  not 

tonnage.  ^ 

Mr.  G.  F.  Swift  Jr.  I  think  perhaps  50  per  cent  in  tonnaffe. 

Mr.  Mouse.  Mr.  Swift,  how  is  your  business  insured?   Do  vou  in- 
sure  your  business— your  buildings  in  the  old-line  insurance  com- 
•  ^^^^^^      you  carry  your  own  insurance  company  ? 

Mr.  a  F.  Swot,  Jr.  We  had  some.  We  do  some  of  them,  I  believe 
MOBM.  You  carry  some  of  the  risk  yourselves  and  some  you 
carry  with  the  old-line  oompanies?  ^ 

Mr.  Fk>wAKD  F.  Swut.  Largely  in  the  old  Ime  companies,  but  we 
have  an  insurance  company  that  we  do  carry  a  portion  of  it  ourselves. 

Mr.  Mc»aB.  Will  you  mention  some  risk  that  you  have  had  in 
recent  years  that  made  any  considerable  loss? 

Mr.  Chaplin  Six  or  seven  years  a^  w,  ptt^iaps,  10  years  ago. 

Mr.  Morse.  Whereabouts  was  it?  ^  ^  J 

Mr.  Chaplin.  Kansas  City  and  St.  Louis  and  St.  Joe. 

Mr.  Morse.  How  much  money  did  you  lose  about  at  that  tinei 

Mr.  Chaplin.  I  think  a  little  over  a  million  dollars. 

Mr.  Morse.  That  was  10  years  ago? 

Mr.  Chaplii^.  Yes. 

Mr.  Morse.  Have  you  had  any  since? 

Mr.  Chaplin.  There  were  two  bad  floods  at  Kansas  City 

Mr.  Morse.  You  say  one  was  10  years  ago?  When  was*  that? 

Mr.  Chaplin.  I  think  two  years  before. 

Mr.  Mouse.  You  had  one  10  years  ago  and  one  12  years  airo  ? 

Mr.  Craflin.  Yes,  sir.  •  ^  • 

ago?"^"  ^^^"^  *  million  dollars  you  lost  in  the  one  10  years 

-  Mr.  Chafmn.  Yes,  mr;  in  one  of  the  floods. 
Mr.  McnisB.  How  much  in  the  other  one? 
Mr.  C^AFON.  I  do  not  reccdlect  The  loss  was  considerable. 
Mr.  MoRSB.  Has  there  been  any  loss  since  that  time,  through  those 

two  floods?  ^ 

Mr.  Chaplin.  There  have  been  some  small  otoppaffes:  not  venr 

great,  four  or  five  thousand  dollars.  ©    >  ««v  »«jr 

Mr.  Morse.  To  what  extent,  do  you  know? 

Mr.  Chapin.  Oh,  I  suppose,  perhaps,  a  thousand  dollars.  That  is 
not  countmg  in  addition  to  the  intervention  of  the  business 

Mr.  Morse.  Have  you  had  any  other  losses— uncontroUable  losses? 
Mr.  Chaplin  We  have  had  some  losses  from  cyclones;  not  serious. 
Mr.  Morse.  When  were  those? 

"^^^^^  I  ^'^st  year  down  at  St  Joe 

tbat  did  some  damage  and  at  Omaha  and  St.  Louis;  not  serious. 


MAXnCTTM  PROFIT  UMPTATIOir  OF  UXAT-TkCmSQ  ITOUSTBT.  61 


Mr.  Morse.  In  other  words,  for  the  past  10  years  vou  have  had 
no  damages  through  things  of  that  kind;  floods  or  fires  or  things 
that  you  could  not  insure  agaii^  that  amounts  to  over  5,  or  10  or 
20  thousand  dollars,  in  10  years? 

Mr.  Chaplin.  Except  the  one  of  a  million  dollars. 

Mr.  Morse.  Well,  that  was  10  years  ago,  I  understand? 

Mr.  Chaplin.  That  was  10  years  ago. 

Mr.  MoBSE.  You  have  had  none  since  ?  -  i 

Mr.  Chaplin.  No.  not  serious.  Of  course,  we  are  still  situated 
as  we  were  then.  Any  year  we  are  liable  to  be  flooded  and  it  re- 
quires just  a  necessary  combination  of  circumstances. 

Mr.  Morse.  In  other  words,  there  is  no  particular  hazard  m  this 
business.  It  is  a  pretty  stable,  standard,  substantial  business,  isn't 
it? 

Mr.  G.  F.  Swift,  Jr.  I  think  it  has  about  its  average  hazards  out- 
side of  the  market.  ^  ^i..  i.  ^i.  ^  • 
Mr.  Morse.  Well,  keep  that  out  for  this  reason.   I  thmk  that  is 

part  of  the  business,  price  fluctuation.  . ,  ,  .  . 

Mr.  Edwabd  F.  Swirr.  But,  if  you  will  aHow  me,  this  is  an  extraor- 
dinary time.  Prices  have  advanced  to  such  a  point,  to  a  higher 
point  than  they  ever  advanced  except  during  the  Civil  War  m  the 
United  States,  and  the  hazard  is  much  more  than  usual. 

Mr.  Morse.  Do  you  think  there  is  going  to  be  a  great  slump  in 
meatpricesafter  the  war?  •-,     ui      ^  ^• 

Mr.  Edwabd  F.  Swift.  I  think  there  will  be  considerable  reduction 
in  prices  after  the  war,  and  I  would  like  to  tell  you  the  reason  why. 

Mr.  Mouse.  I  would  like  to  hear  that. 

Mr.  Edward  F.  Swift.  Because  England  and  France  will  buy 
their  meat  and  wheat  from  South  America  and  Australia  instead 
of  from  the  United  States,  and  at  the  present  time  there  is  at  least 
20  per  cent — of  the  five  large  packers — there  is  at  least  20  per  cent 
going  to  France  and  England,  as  against  possibly  5  per  cent  before 
the  war.  With  the  20  per  cent  that  is  now  going  to  England  and 
France,  that  will  have  to  be  consumed  at  h<MDfie  and  there  will  be 
a  natural  reaction.  I  think  it  is  inevitgfele.  .„  „    ,    ,      ,  ^ 

Mr.  Morse.  Well,  why  is  that?  WTiy  will  England  and  France 
ffet  their  meat  products  from  Australia? 

Mr.  Edwabd  F.  Swift.  Because  i^e  will  have  the  ships  to  carry 
it.  That  is  the  reason  isiie  is  not  getting  it  now,  and  the  only  rea- 
son It  would  come  from  Australia  and  South  America  and  the 
price  would  regulate  itself.  If  they  had  the  ships  it  would  be  nat- 
ural to  get  it  ftGrn  tiiere.  Anyway,  five  years  ago  the  United  States 
was  shipping  no  beef  to  England  or  France.  Now  they  are  ship- 
ping at  least  20  per  cent  of  their  slaughter  and  as  soon  as  the  ships 
areavailable  to  bring  it  the  longer  distance  it  will  come  from  South 
America  and  Australia  to  England  and  France  again. 

Mr.  Morse.  But  on  the  admirable  system  that  you  people  have 
of  Selecting  your  cattle  and  handling  them  and  cutting  them  up  and 
shiping  them  to  England,  don't  you  think  the  Englishman  is  going 
to  like  this  beef  and  want  it  in  preference  to  the  more  crude  meth- 
ods of  Australia  and  South  America? 

Mr.  Edward  F.  Swift.  No.  We  have  been  through  that  20  yeare 
ago.  We  shipped  cattle  and  beef  to  England  and  France  up  to  the 


6S     MAXIMUM  PBOriT  LIMITATION  ON  M£AT-FACKING  INDUSTBY. 

tiliie  of  the  war  it  had  dwindled  to  nothing.  South  American  beef 
has  taken  its  place.  It  will  be  the  same  way  after  the  war.  They 
have  verv  fine  oeef  in  South  America. 

Mr.  MoRSB.  Well,  I  suppose  you  ship  it  to  South  America  and 
Australia  just  the  same? 

Mr.  Edwabd  F.  Swut.  The  same  improved  methods. 

Mr.  Mouse.  I  would  not  like  to  si^jr  they  have  as  good  methods 
there  as  here,  on  account  of  my  natunJ  pride  in  America. 

Mr.  Edward  F.  Swift.  No.  The  average  beef  is  no  better  and  Aus- 
tralia and  New  Zealand  is  the  finest  lAmhand  mutton  oountiy  In  the 
world. 

Mr.  Morse.  You  will  be  the  ones  that  will  ship  from  those  oottn- 

tries  after  the  war  if  what  you  say  takes  place. 

Mr.  Edward  F.  Swift.  Only  to  a  small  extent.  There  are  Etiglish 
and  South  American  companies  to  engage  in  the  business. 

Mr.  Morse.  I  guess  among  the  big  packers  though  you  have  the 
biggest  percentage  of  business  in  these  countries,  don't  you  ? 

Mr.  Edward  F.  Swift.  No;  I  think  not.  In  Australia  and  New 
Zealand,  small;  but  I  want  to  emphasize  the  point,  I  think  you  do 
understand  it,  but  I  want  to  make  sure  of  it:  That  it  is  inevitable 
that  the  wheat  and  meat  will  come  from  Australia  and  South  Amer- 
ica to  England  and  France.  We  won't  have  that  trade.  There  is  no 
question  about  it,  because  when  the  war  is  over  there  will  be  the  ships. 
The  tonnace  will  be  there  and  will  be  thrown  right  into  that  busi- 
ness. England  and  France  and  the  United  States  are  all  building 
i^ps  as  fist  as  thev  can  and  that  is  the  principal  reason  of  these 
very  high  prices  in  hogs  and  cattle  at  the  present  time.  They  have 
gone  to  these  foreign  countries. 

Mr.  MoBSi.  Personally,  I  think  that  prices  may  recede  somewhat 
after  the  war  but  I  do  not  think  there  is  going  to  be  a  slump. 

Mr.  Edward  F.  Swut.  I  quite  agree  and  I  tried  to  be  very  con- 
servative in  this  5  cents  a  pound,  in  stating  that  it  was  only  20  per  cent 
off,  although  the  prices  had  been  douUed  since  before  the  war*  I 
want  to  be  reasonable  on  that. 

Mr.  Morse.  You  want  to  wait  until  about  lour  or  five  years  after 
the  war  if  you  want  a  panic. 

Mr.  Edward  F.  Swift.  I  am  not  anticipating  a  panic 

Mr.  Morse.  That  is  when  the  reaction  will  take  place. 

Mr.  Edward  F.  Swift.  I  am  saying  that  this  20  per  cent  of  meat 
and  wheat  that  is  going  from  the  United  States  to  England  and 
France  will  come  from  South  America  and  Australia.  It  did  before 
the  war  and  it  will  after  the  war;  it  is  simply  a  question  of  shipping 
and  nothing  else. 

Mr;  Whipple.  In  your  opinion  it  is  nothing  more  than  a  question 
of  ships  at  the  raesent  timet 

Mr.  Edwabd.  jF.  jSwnr.  Yes,  sir. 

Mr.  Chapun.  There  is  another  question  that  will  determine  the 

5 rices  and  that  is  the  question  of  wages ;  employment  in  this  countiy. 
iftw  the  war  there  will  probabli^  be  industries  that  will  have  to  dis- 
dbntinue.   I  do  not  think  they  will  have  enovi^  money  to  buy  meat. 
Meat  must  be  sold,  so  it  must  be  sold  cheaper. 
Mr.  Wbipfu.  Oh,  it  will  have  its  effect 


UAXIUUU  PBOFIT  LIMITATION  ON  MfiAT-PACKING  INDUSTBY.  63 


wo1SiS^-g2JrS^^  control.    In  other 

theri  is  a  few  y?ar?af terwl^^^  '^'^  ^       depression  as 

Mr.  Chapun.  I  think  we  all  airree  on  thnf 
wa?I;  '  ^  ^Z?^L  wm  find  it  after  th. 

before  o,,r  war.   I  never  exp4t  to  see  th"  °*  ^  °'  ^^^"^ 

no^  thiXr"  L™  blir  -  tbe  United  St^ 

VhT  W^l"^'*^/ ^"'■^  more  hogs, 

lamn'  •  ^^'^y  '''■^       bunched  togetheTon  lanm 

l£'  Aa"'?"'*'""".*!"^^*'''"  ^"t^'^  in  there? 

^^^^^^^^^^^ 

,        dc^n'tlf™*  *^  oi  transportation  ente«  in. 

>  Mr.  Edward  F.  Swift.  No 

h^''iZ''l^„?£}t!Lr'        *«  ^^rt  small  quantities  of 
Mr.  Edward  F.  Swift.  Not  up  to  a  carload. 

S  to-d^J^braSia^L'^'ilidtyroflar^^ 

can  winter  more  cattle  ^  **' «>  *orth.  They 

of^^i^rrhe'^Sirfe^^  ^V-r  point 

bfAagr  done  away  with?  doe  to  th.  big  ranches 

pc>rtion  of  it  has  bee^  K  fo?cot  on-^b^rwi'*''*!!?^  ^  • 
It  up  they  will  take  better  c^Trf  fh«  ^^f/i  7^®"?  ^^^y  have  spUt 
findwayLfraisi„g'^n<Sd\^^^^^ 

li^e-stock  business  has  incnS  fn  «ii  if  k  *«  «y 

y         Mr.  Chaplin.  Then  IW  hr  J3  *  ,  branches. 

Mr.  Edward  F  Sw^  fn  tSl^TJS  ^""^  ^^"nger  ? 

tured  products  it  is  ^evi^r^t  i^lT'V"''  n^LuUc- 
the  profits  will  exceed  the  nwrnal^oSL  business 
m  declining  markets  that  tr^fig  wfel^^K""^  T 


64     MAXIMt7M  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY. 

Ifo.  Whipwjs.  Now,  I  wwit  to  a^,  do  you  believe  that  the  uniform 
rate  Of  depreciation  on  bmldings  and  machinery  and  any  other  equip- 
ment that  you  have  got  worfd  be  applicable  to  all  companies,  or 
diould  each  company  l)e  judged  on  its  own  assets?  In  other  words, 
do  you  think  every  company  should  be  judged  on  its  merits  by  itself 
or  would  one  rate  apply  to  all  companies  f 

Mr.  Chaplin  Well  1  think  it  t^rould  apply  only  on  an  average; 
not  quantities.  It  would  be  too  mndi  for  m  company  and  too  li&e 
for  another.  ^ 

Mr.  Whipple.  As  far  as  the  depreciation  rate  within  one  company, 

do  you  believe  that  it  should  be  at  one  fixed  rate,  or  should  the 
separat^e  parts  of  the  industry  be  ^iven  the  benefit  of  different  de- 
preciation rates?  That  is,  for  instance,  should  buildings  be  iriven  2 
per  cent  and  machinery  be  p:iven  10  per  cent  and  your  wagons  and 
automobiles  a  different  percentage,  or  could  it  aU  be  char^  at  one 
rate  f 

Mr.  Chapmn.  Well,  I  think  it  all  depends  on  how  much  detail  you 
want  to  go  mto.  We  figure  our  buildings  at  one  rate  and  our  ma- 
chinery at  another. 

Mr.  Tratkos.  We  classify  our  buildings. 

Mr.  Whippmi.  Well,  have  you  in  your  business  sufficient  detail  to 
go  into  Uie  various  classesf 
Mr.  Ghapejk.  Yes,  we  could  dig  it  out 

Mr.  Whipm^  You  could  classify  your  equipment  then  and  take 
an  average  of  the  classes? 

Mr.  Chaplin.  We  have  not  got  the  detaik  for  the  different  ma- 

cnmes,  but  we  could  take  an  average  figure. 

Mr  Morse.  I  mijrht  say  that  my  experience  in  krge  mwiufactur- 
ing  plants  is  simply  like  this:  You  may  depreciate  buildings  any- 
where from  1  and  2  and  3  per  cent,  according  to  what  those 
buildings  house.  They  may  depreciate  their  machinery  anywhere 
from  2  to  3  up  to  10  or  15  or  25  per  cent,  or  even  34  per  CMit, 
according  to  the  nature  of  the  machinery.  Automobilesofer  25  or 
60  per  cent,  and  throughout  the  different  classes  of  assets,  so  that 
when  you  would  take  all  those  percentages  and  the  dollars  repre- 
sented and  average  them  up,  you  will  find  you  might  have  an  average 
late  of  depreciation  of  between  4  and  5  per  cent  Now,  is  such  a 
thing  as  that  possible  m  this  industry  ?  - 

Mr.  Ckaflik.  It  is  possible. 

in  My  wa?li^  however,  arrive  at  your  depreciation 

Mr.  CHApunr.  No;  we  do  not 

Mr.  MoBSB.  How  do  vpu  arrive  at  your  depreciation?  I  know  I 
am  getting  into  a  verv  big  subject 

Mr.  Chapun  Well,  we  have  a  rate  of  21  per  cent  on  buildings 
m  our  own  packing  houses  and  8  per  cent  on  machinery,  which  we 
think  IS  fair.  At  our  branch  houses  we  have  rates  based  on  the  dif- 
ferent types  of  construction.  We  have  one  rate  on  concrete  and  one 
on  modern  mill  constructed  buildings  and  another  rate  <m  old  tii^ 
buildings.  A  separate  rate  on  machineiy.  We  have  separate  ratal 
on  automobiles  and  wagons.  ™«» 

Mr.  Morse.  How  do  you  distribute  your  overhead?   Now  that  is 
another  big  quesUon.  Do  not  take  up  too  much  d^  on  that 


MAzonnc  PBonr  iiusTJmm  ok  mekt-^mskiso  ihdusiby.  66 


> 


Mr.  Chaplin.  The  overhead  on  what? 

Mr.  Morse.  The  overhead  expemb.  How  do  you  diiitrihiitf>  the 

overhead  on  your  plant? 

Mr.  Chaplin.  What  do  you  call  overhead! 
Mr.  Chase.  General  administration. 

Mr.  Morse.  Oh,  superintendents,  insurance,  taxes  oa  buildinn, 

and  things  of  that  kind. 

Mr.  Chaplin.  Insurance  and  taxes  is  based  on  the  values  of  the 
house  and  the  building,  with  the  department  in  it.  The  value  is  so 
much.  We  arrive  at  the  value  of  each  department— the  insurable 
value— and  we  pro  rate  the  total  insurance  for  the  plant  on  that  basis, 
month  bv  month. 

Mr.  JIloBSE.  How  do  you  take  general  administrative  expenses? 

Mr.  Chaflin.  Administration  expense  is  based  on  the  output;  the 
sales.  Eadi  dollar  of  sales  stands  its  share  of  the  administrative 
expense.  One-half  of  1  per  cent,  or  whatever  we  have  fixed.  Super- 
intendents is  based  on  labor. 

Mr.  Morse.  I  am  going  to  show  you  a  figuration  made  up  by  Mr. 
Chase  which  is  headed :  "  Percentage  of  pn^  and  net  worth.** 
This  IS  on  the  plant  of  Armour,  yourselves,  Morns,  Wilson,  and 
Cudahy,  and  net  worth  is  divided  up  between  class  1,  class  2,  and 
class  3,  and  your  total  net  worth ;  and  then  allowed  percentages— 
percentage  of  profit,  and  so  forth.  The  basis  for  this  calculaticm  is 
the  last  four  months'  pro  rata,  so  as  to  take  in  an  entire  year,  and 
I  want  to  ask  you  what  your  explanation  is  as  to  the  variation  of 
these  different  percentages  as  between  the  different  plants  that  I 
have  mentioned.  I  wish  further  to  call  your  attention  to  the  fact 
that  the  total  percentages,  that  is  on  the  total  business,  you  do  not 

find  the  same  variation  that  comes  down  to  where  they  are  more 

equal. 

Mr.  Edward  F.  Swift.  I  do  not  feel  that  we  could  answer  that 
question  now  without  further  study.  I  do  not  think  we  are  suffi- 
ciently familiar  with  the  subject  to  ansy^er  it,  and  I  do  not  think 
it  would  be  fair  to  you  or  to  us. 

Mr.  Chase.  We  know  that  from  the  bottom  of  the  record  here, 
that  Swift  &  Co.  are  going  to  earn  aproximately  25  per  cent  on  their 
net  worth;  that  is  on  capital  plus  the  surplus,  this  coming  year. 

Mr.  ^WABD  F.  Swift,  We  think  a  mistake  has  been  made  in  these 
figures  by  including  our  foreign  business  for  the  year  and  multiply- 
ing It  by  3,  for  the  next  eight  months,  and  that  the  figures  will  be 
cwifflderably  less.  We  propose  to  give  you  a  written  statement  of 
our  records  of  the  same  by  12  o'clock  Wednesday,  which  will  be  made 
a  part  of  the  record.  We  also  think  that  etch  daas,  class  1,  class  2 
and  class  3,  should  be  dealt  with  entirely  separate.  From  our  stand- 
point they  should  be  dealt  with  entirely  separate.  And  we  further 
think  that  the  question  of  foreign  profits  madid  not  be  assodated  in 
any  way  with  domestic  profits. 

Mr.  Morse.  I  understood  you  to  say,  Mr.  Swift,  at  the  begmning 
of  the  conversation  here,  you  made  a  statement  that  you  did  not 
think  this  regulation  had  been  in  force  long  enough  to  test  its  prac- 
ticability one  way  or  the  other.    Did  you  make  such  a  statement! 

Mr.  Edward  F.  Swift.  Yes,  sir. 

Mr.  Morse.  You  did? 


G6     MAXIMUM  VBOm  UMITATION  ON  MBAT-PAOKING  Iiny08XBY. 

Mr.  Edward  F.  Swift.  Yes,  sir:  as  to  profits. 
Mr.  Morse.  How  long  do  you  tnink  this  present  regulation  should 
be  in  force  before  a  fair  test  of  its  workability  could  be  obtained! 
Mr.  Edward  F.  Swift.  One  year. 

Mr.  Morse.  I  understand  you  then  to  be  in  favor  of  its  continu- 
ance in  all  of  its  present  forms  for  one  year? 

Mr.  Edward  F.  Swift.  Yes ;  with  the  exception  of  the  transfer  of 
certain  departments  from  one  class  to  another,  as  previously  stated. 
We  think  a  liberal  allowance  should  be  made  for  reserve  inventories 
carried  from  one  year  to  another. 

Mr.  MoBSB.  Mr.  Swift,  fran  the  standpoint  of  an  aeoonntant,  I 
always  like  to  see  cost  of  a  product  charged  to  the  particular  de- 
partaient  at  the  actual  cost  thereof.  It  has  been  explained  to  me  by 
various  ones  as  to  the  difficulty  of  doing  that  in  the  meat-packing 
indnstrj.  Do  you  believe  if  such  a  method  could  be  found  or  ascer- 
tained, for  ascertaining  the  exact  cost — no  theoretical  cost,  but  the 
exact  cost— do  you  thi&  it  would  be  a  benefit  to  the  industry  ? 

Mr.  Edwabd  F.  Swift.  We  doubt  if  exact  cost  could  be  obtained, 
but  we  think  approximate  cost  could  be  obtained. 

Mr.  Morse.  But  you  are  obtaining  now  the  approximate  cost  or 
the  cost  as  near  as  you  can  obtain  it,  as  I  understand  it. 

Mr.  Edwabd  F.  Swift.  Yes,  and  are  constantly  striving  to  perfect 
the  same. 

Mr.  Morse.  But  when  you  credit  stuff  at  the  market,  you  are  not 
crediting  it  at  cost.  You  are  taking  profit  or  loss  whenever  you  credit 
any  product  at  market  Theoretically  that  is  true.  No  explanation 
can  alter  that. 

Mr.  Tratnor.  But  doesn't  your  question  carry  with  it  an  inference 
that  we  are  doing  it  perhaps  one  way  when  we  ought  to  be  doing  it 
in  another  way? 

Mr.  McNBSB.  Oh,  no.  I  haye  been  very  frank  with  yon. 

Mr.  Tb4tn<».  But  the  proposition  led  up,  as  I  unaerstand  it,  was 
Iroili  the  suggestion  that  omr  costs  mig^t  be  more  accurate  than  they 
are. 

Mr.  MoBSB.  Possibly  th^  might.  I  donHi'know. 

Mr.  Traynor.  As  I  unaerstand  your  question,  if  a  system  could 
be  devised  that  would  produce^  accurate  costs,  would  we  be  glad  to 
see  that,  and  ihe  answer  is,  *^  Yes."  But  as  far  as  we  are  concerned, 
we  are  figuring  costs  as  accurately  as  we  know  how.  We  have  been 
trying  for  thirty  years  to  do  it  better  each  month.  We  have  got  a 
system  now  which  we  think  is  as  good  as  it  could  practically  be. 

Mr.  Chaplin.  It  can  be  improved,  imdoubtedly. 

Mr.  Traynor.  But  understand,  there  are  about  twelve  or  fifteen 
hundred  elements  enter  into  the  process  of  figuring  the  cost  of  one 
steer.  We  try  to  get  them  as  exact  as  we  can. 

Mr.  Chaplin.  It  is  not  like  some  mills,  that  you  can  split  them 
up  by  some  chemical  combine  and  have  exact  quantities  of  the  two 
elements.  In  a  steer,  every  brand  changes.  You  have  got  to  take 
averages. 

Mr.  Mourn,  Ton  see,  idien  your  books  aie  kept  the  way  they  are, 
with  the  interocnnpany  profits  here  and  there  and  different  places, 
it  is  a  y«Ty  hard  matter  for  the  Gkyf^^mnient  to  come  in  and  fmik  up 
and  see  just  what  you  are  doing.  Not  that  I  am  assuming  th«k'  you 


^  ICAXnCUM  PROFIT  UMTrJOtm  OK  MBAT-PAGKINO  IKDUSTBY.  67 

are  doing  anything  wrong  at  all,  but  if  you  have  to  do  S(»nething 
you  should  certainly  give  them  a  right  report   Hence,  under  the 
system  it  is  hard  for  a  man  to  come  in  here  and  check  up.  You 
y       could  fool  a  man  dreadfully  as  to  what  your  profits  are. 
Mr.  Edward  F.  Swift.  We  do  not  feel  so  disposed. 
Mr.  Morse.  Do  not  think  I  am  insinuating  that  you  do.   I  do  not 
want  you  to  think  so.  But  I  am  just  thinking  of  the  possibilities  if 
you  did  want  to  do  so. 
^         Mr.  Edward  F.  Swift.  Our  figures  are  entirely  open  to  the  Govern- 
ment.   It  IS  no  secret  that  the  correct  results  of  our  business  are 
shown  on  our  books. 

Mr.  MoBSE.  Oh,  yes.    I  do  not  doubt  that,  but  I  was  saying 
that  I  would  like  to  see  something  done  if  possible  where  some  way 
V      Sk^^"**^™®^  ^™      Government's  standpoint  in  conducting 

^      tne  tMX)Ks. 

Mr.  Edward  F.  Swift.  There  isn*t  any  trouble.  The  only  trouble 
I  see  IS  the  point  of  tune.  If  you  want  to  go  into  the  details,  you 
can  check  the  division  of  one  departamt  itmik  another  closely,  but 
-        you  can  not  do  it  in  a  minute. 

course  you  can't.  That  is  the  trouble. 

T^-     "^I^^u  •  ^^^^^  iMWMWM  witii  a  YoLwm 

and  with  the  big  interests  that  this  is,  unless  you  wiU  take  the  time 

to  check  it.  That  is  the  answer. 

Mr.  Morse.  I  think  you  are  dead  right. 
.  >  Mr.  Traynor.  It  can  not  be  checked  in  a  half  a  day.   It  can  be 

checked  just  as  easy  though  as  any  other  business. 

Mr.  Edward  F.  Swift.  It  can  not  be  done  in  one  afternoon. 

Mr.  Morse.  I  think  you  are  absolutely  right.    Only  that  I  am 
sorry  we  have  to  try  to  do  something  in  one  afternoon 
y  Mr.  Traynor.  It  is  not  fair  to  you  and  it  is  not  fair  to  us,  and 

any  conclusions  you  reach,  I  do  not  care  who  does  it,  can  not  be 
^^2r*  Jgry  nauch  if  you  try  to  do  it  that  quickly. 

Mr.  Edwabd  F.  Swut.  You  ought  not  to  try  to  do  it  in  one  after- 

y       TiT^^/^i?***'?-  ^  ^  consideration  one  thing. 

wJ?^'r*i?*l'^  ^'^^^  t^at  he  has  col- 

lected  of  the  big  mdustnes,  which  if  we  did  not  have  them  and 
have  an  opportunity  to  go  over  those  befcm  we  came  here,  we  would 
never  have  sot  started  straight  Mr.  Chase  has  done  an  awful 
lot  of  work  here. 

him Edwabd  F.  Swot,  JUd  we  have  constantly  cooperated  with 

Mr.  Morse.  That  is  what  he  said;  that  you  had  been  perfectly 
willing  to  give  him  anything  he  asked  for.  F^«^y 

^  Mr.  Edward  F.  Swift.  Yes.  That  is  a  fact. 

y  I  know  he  appreciates  that  and  I  know  I  do. 

Mr.  Whipple  You  just  made  the  statement,  and  I  think  it  wants 
to  be  understood  by  the  packers,  that  we  are  not  here  to  determine 
whether  the  packers'  methods  of  keeping  books  are  right  or  whether 
their  figures  are  nght  We  are  only  here  to  pass  an  opinion  on 
the  work  that  the  Federal  Trade  Commission  has  done  thus  far, 

p.       wb^^we  think  they  are  following  the  proper  line  of  investiffa- 
U(3^  I  think  we  can  form  a  very  close  opinion  of  that  by  the  te^- 


58     aUJUMUM  PBOf  IX  UM^XAXION  QIT  MSAT-FACKING  INDUSTBY. 

mony  that  you  people  have  given  and  that  the  other  packers  will 
give.  Our  investigation  does  not  include  either  righting  figures 
or  claiming  that  they  are  wrong.  We  are  not  interested  in  that 
at  present.  We  are  merely  rank  outsiders  called  in  to  give  an 
opinion  as  to  the  methods  the  companies  operate  on. 

Mr.  Morse.  Is  there  anything  else  now,  genUement 

Mr.  G.  F.  Swift,  Jr.  We  think  we  have  a  few  little  things,  sort  of 
fundamental ;  if  agreeable  to  you  we  would  like  to  present  to-morrow 
in  just  a  little  memorandum.  It  would  not  be  long  at  all,  along  with 
this  leUer  that  we  were  going  to  give. 

Mr.  MoBSE.  We  will  be  very  glad  to  have  it 

Mr.  G.  F.  SwnT,  Jr.  Make  it  a  part  of  the  recordi 

Mr.  Morse.  And  make  it  part  of  the  record. 

Mr.  G.  F.  Swift,  Jr.  It  will  be  cam^  and  dear  and  saye  time 
and  save  a  lot  of  explanation. 

Mr.  WmFfiJE.  You  may  provide  now  that  anything  that  you  gen- 
tlemen want  to  submit  before  we  finish  up  this  record  you  will  sub- 
mit it  and  it  will  go  in  the  record  and  will  be  bound  up  as  part  of 
the  record. 

Mr.  Traynor.  Even  subsequent  to  this  letter? 
Mr.  Whippus.  Subsequent  to  this  letter,  but  we  are  going  away 
soon. 

Mr.  Chase.  Up  until  the  24th  of  June. 
Mr.  Edward  F.  Swift.  We  will  try  to  get  it  in  to-morrow. 
Mr.  WniPPiiE.  Anything  that  you  can  submit  we  will  all  welcome 
heartily. 

(Whereupon,  at  5.15  p.  m.,  the  hearing  was  adjourned  until  10 
o'clock  a.  m.,  June  12, 1918.) 

ABMOUB,  WHiSON,  AKD  CUOAHT. 

Chicago,  III.,  June  1^,  1918 — 10  a.  m. 
Present  on  behalf  of  the  Federal  Trade  Commission:  Stuart  Chase, 
Esq.;  Samuel  W.  Tator,  Esq.;  Perlev  Morse  &  Co.,  certified  j^blic 
accountants,  New  York,  lepresented  by  Periey  Morse  and  P.  S. 
Whipple. 

Present  on  behalf  of  Armour  &  Co. :  F.  Edson  White,  Esq.,  vice 
president;  W.  P.  Hemphill,  Esq.,  general  auditor;  and  (later)  J. 
Ogden  Armour,  £lsq.,  president. 

F.  Edson  White  was  called  as  a  witness  and,  being  examined,  testi- 
fied as  follows: 

Mr.  Morse.  Mr.  White,  you  are  more  or  less  familiar  with  the 
United  States  Food  Administration  Meat  Division  rules  and  regula- 
tions that  have  been  in  force  since  November  1, 1917? 

Mr.  WnrrB.  More  or  less. 

Mr.  Morse.  Have  you  any  suggestions  for  amendment  or  change  of 
these  regulations  in  any  way? 

Mr.  WnrrB.  Our  suggestion  on  changing  of  the  regulations  would 
be  the  profit  under  artide  2  and  change  of  the  classes.  We  think,  for 
instance,  that  you  now  under  the  ruUngs  have  got  some  aooounts  in 
elasB  ttiat  in  aU  ibuniess  should  be  in  class  3. 


MAXIMUM  FSOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTBY.  69 


Mr.  Morse.  Would,  you  mind  mentioning  the  names  of  those 
accounts  ? 

Mr.  White.  Well,  we  particularly  refer  to  what  we  call  our 
Thirty-first  Street  accounts,  which  is  a  plant  entirely  apart,  located 
a  mile  and  a  half  from  the  stockyards,  run  by  an  entirely  separate 
organization,  buying  but  part  of  their  product  from  Armour  &  Co., 
in  competition  in  trade  in  which  it  is  engaged  with  some  of  the 
biggest  people  in  those  lines  of  trade,  as  well  as  the  smaller,  upon 
whom  there  is  no  limitation.  I  refer  particularly  to  what  is  kno¥ni 
as  the  glue,  curled  hair,  and  soap  accoimts. 

Mr.  IfoaisoB.  Ton  control  this  eoncem  yourself,  don't  jou? 

Mr.  Wmrn  Absolutely. 

Mr.  MoBSE.  By  stock  ownership? 

ytt,  WHim  It  is  part  of  Armour  &  Co. 

Mr.  Morse.  It  is  part  of  Armour  &  Co.  ? 

Mr.  WmTB.  Yes. 

Mr.  Hemphill.  Armour  &  Co.,  of  Illinois. 

Mr.  Morse.  And  you  own  100  per  cent  of  the  stock? 

Mr.  Whttb.  Yes. 

Mr.  Whiffui.  Would  you  think  that  should  apply  to  butterine  and 

fertilizer? 

Mr.  White.  I  think  it  should  apply  to  leather  and  fertilizer  and 
butterine. 

Mr.  Hemphill.  Pardon  me,  butterine  is  now  in  class  1, 

Mr.  White.  This  in  general  substance  is  the  same. 

Mr.  Hemphill.  But  you  are  talking  about  class  2  departments. 

Mr.  White.  The  mince  meat  department,  city  fat,  gut  string  de- 
partment and  the  pork  and  bean  department. 

Mr.  Morse.  In  other  words,  your  contention  is  that  all  articles  on 
which  you  have  competition  irom  the  outside  should  be  put  in  class 
8,  is  that  the  ri^t  understanding? 

Mr.  Whtib.  That  is  an  argument  for  it,  but  the  essential  point  is 
that  it  is  not  really  a  part  of  the  beef  business  or  packing  business. 
It  is  just  a  separate  institution.  The  fact  we  are  in  tiie  glue  business 
is  only  incidental  to  our  packing  house.  For  instance,  in  our  glue — 
where  is  your  investment  she^i 

Mr.  Hemphill.  Here  it  is. 

Mr.  White.  We  have  got  three  and  one-half  million  dollars  in- 
vested in  the  glue  works,  and  we  buy  from  Armour  &  Co.  less  than 
half  of  the  product  to  make  the  glue.  The  balance  of  it  we  buy  all 
over  the  world :  China,  South  Africa,  and  South  America,  and  when 
the  Europe  markets  are  open,  in  Europe.  It  is  not  any  part  of  the 
pork  and  beef  business.   It  is  distinctly  a  separate  institution. 

The  soap  works,  we  have  got  $5,500,000  invested  in  the  soap  plant. 
Our  competitors  are  Procter  &  Gamble,  and  Colgate,  and  all  such 
people  as  that.  The  soap  business  is  only  an  incident  to  the  packing 
house  business.  We  buy  vegetable  oils  in  every  part  of  the  world  to 
make  soaps.  You  see,  no  animal  oils  go  in  the  fats,  nothing  that 
comes  from  this  packing  house,  so  why  limit  that  business,  why  put 
a  restriction  around  the  Armour  Soap  Works  if  there  is  not  one 
around  the  bi^est  men  in  ihe  business? 

Mr.  M(»8B.  I  ou  mean,  Mr.  White,  that  the  packers  are  


70     UAJOMVU  PBOFIT  UMITAXION  ON  lOUl^PAOKINa  imV&m. 


Mr.  White.  Let  me  say  further  that  in  that  soap  business  76  per 
cent  of  the  product  we  buy  comes  from  other  than  Armour  &  Co. 
Mr.  Hemphill.  In  raw  material. 

Mr.  White.  Raw  material  I  refer  to,  of  coui-se.  On  the  ghie  busi- 
ness, 48  per  cent  of  last  year's  1917,  purchases  came  from  outside  of 
Armour  &  Co.  The  sandpaper  works  down  there,  part  of  that  insti- 
tution, 100  per  cent  of  it  came  from  outside. 

Mr.  Morse.  Do  you  think,  Mr.  White,  that  the  packers  or,  at  least, 
Armour  &  Co.,  would  look  with  favor  on  a  segregation  of  business, 
so  that  the  packers  would  only  conduct  that  portion  of  the  business 
they  are  now  c<mductin^  that  pertains  only  to  the  meat  industry. 

Mr.  Wsom  I  think  it  would  be  the  greatest  eoonomical  mistake 
that  has  ew  happened  in  industry. 

Mr.  MoBsa.  In  other  words,  your  by-products,  so-called,  reduce  the 
cost  of  the  meat  products? 

Mr.  WnmB.  Yes.  Here  is  the  situation.  We  have  to  be  pr^ared 
in  this  business  for  volume.  We  have  these  great  enormous  plaiils 
that  take  the  maximum  load  off  the  live  stock  market.  We  have,  in 
order  to  merchandise  that  load,  this  great  distributive  facility  of  400 
branch  houses.  We  could  not  nm  those  branch  housea  on  just  pork 
and  beef. 

Mr.  Morse.  Pork  and  beef  and  sheep  and  lambt 

Mr.  White.  Meat  products. 
Mr.  Morse.  Yes;  meat  products. 

Mr.  White.  We  could  not  give  the  facilities,  we  could  not  afford 
to  do  it.  To-day  we  have  to  have  motor  trucks,  we  have  to  have 
plenty  of  help  about  the  plant ;  we  have  to  give  prompt  service. 

Mr.  Morse.  Yes ;  that  is  all  understood. 

Mr.  White.  It  is  an  economic  development,  this  business,  and  when 
we  start  with  this  volume  of  live  stock  and  we  start  to  talk  about  the 
segregation  of  the  thing  

Mr.  MoBSi.  I  think  we  a^ree  on  that,  I  see  that 

Mr.  Wnim  It  is  economically  wrong. 

Ifr.  MoBSB.  I  see  that  I  wanted  to  ^  your  opinion  of  it 

Mr.  White.  Yes. 

Mr.  MoBSE.  You  take  in  this  by-product  business,  a  great  deal  of 
it,  I  suppose,  is  cumulative  from  time  to  time,  and  you  can  not  use 
it  immediately,  is  not  that  true? 

Mr.  Whitb.  We  have  had  some  experiences  here  in  the  25  yean^  I  ' 
have  been  around  this  plant  that  we  have  accumulated — for  instance, 
I  can  remember  back  now  we  came  to  go  into  the  tanning  business. 
It  was  in  one  of  the  panics,  1895, 1  think.  You  could  not  sell  a  hide. 
You  could  not  get  anybody  to  buy  hides.  The  last  known  sale  was  at 
14  cents  a  pound.  We  accumulated  about  300,000  hides  in  our  cellars. 
This  is  20  years  ago.  Those  300,000  hides  then  would  be  the  equiva- 
lent of  half  a  million  to-day. 

Mr.  Morse.  That  has  nothing  to  do  with  what  the  packers  have 
been  accused  of  now,  hoarding  hides.  « 

Mr.  White.  I  will  take  care  of  that  later.  This  is  the  same  thing, 
but  that  is  another  story.  To  continue,  you  could  not  sell  those  hides. 
Nobody  could  borrow  money  in  the  1895  panic,  if  I  remember.  The 
tanning  business  is  a  long  turn,  you  only  turn  your  money  about  once 
a  year  or  cmce  and  a  quarter  in  the  year.  Is  that  about  itt 

Mf-  HiMFHiLii.  Tes* 


MAXIMUM  FBOmX  UMIXAXION  ON  MBAT-PAOKING  INDUSTEY.  71 


Mr.  White.  We  did  not  know  what  to  do.  Finally  one  of  the  big 
tanners  in  the  country  came  into  the  city  office  and  in  talking  to  our 
hide  man  made  him  a  proposition,  saying  "  I  will  buy  150,000  hides 
from  you ;  I  will  give  you  7  cents  a  pound  and  you  give  me  six  months 
to  pay  for  them."  This  man  reported  that  to  Mr.  Armour,  and  Mr. 
Armour  said,  "  Stop  talking  to  him.  Go  out  and  find  a  tannery  that 
will  tan  these  hides  for  our  account  We  are  Uirough  trying  to  sell 
hides."  Then  we  went  to  a  tanner  who  could  not  get  money,  or  who 
did  not  have  the  nerve  enough  if  thejr  had  the  money  in  the  bank  to 
buy  hides,  and  we  put  our  own  hides  in  the  tanners'  plants  and  paid 
them  so  much  a  pound  for  tanning  the  hides.  That  was  what  started 
it.  The  bulk  of  the  buMness  was  so  big  on  the  whole  that  we  had  to 
find  a  way  out^  and  the  onljr  way  out  was  to  go  through  the  tanyards. 

Mr.  MoBSB.  I  can  appreciate  that  verv  much. 

Mr.  Wnim  We  come  in  here  on  the  fall  on  meat  products,  and  we 
run  into  the  maximum  kill  of  cattle  and  hogs.  We  kill  more  cattle 
in  October  and  November  than  in  any  other  two  months  of  the  year. 
We  kill  more  hogs  in  November,  De<:ember,  and  January  than  in  any 
other  three  months  of  the  year.  There  is  so  much  kill  and  so  much 
less  demand  that  we  have  got  to  put  that  meat  away.  The  same  as 
regards  the  sheep  and  the  offal  

Mr.  Morse.  That  is  put  away  at  the  same  time? 

Mr.  White.  It  is  put  away  until  such  time  as  the  market  can  take  it. 

Mr.  Morse.  Until  such  time  as  the  market  can  take  it,  as  the  cycle 
permits  a  market? 

Mr.  White.  Permits  a  market,  yes. 

Mr.  Morse.  And  you  can  get  rid  of  your  stuff  I 

Mr.  White.  Yes. 

Mr.  MoBSE.  And  so  you  have  got  to  hold  the  by-products  for  a 
long  time. 

Mr.  Whitb.  We  never  hold  products  through  a  season  into  a  new 
season  if  we  can  help  it.  I  mean  we  would  not,  for  in^aiMxt,  carry 
calf  sweetbreads  from  June,  1916.  into  July,  1918. 

Mr.  Morse.  I  do  not  mean  tnat.  I  mean  by-products,  and  by 
by-products  I  would  say  tallow,  hides,  hoofst,  horns,  bones,  and  things 
01  that  kind. 

Mr.  WnrrE.  Yes. 

Mr.  Morse.  When  you  get  those  from  killing,  as  I  understand  it^ 
you  accumulate  them  unl^  you  dispose  of  tham  right  away. 
Mr.  White.  Yes. 

Mr.  Morse.  And  sometimes  you  have  to  keep  them  a  long  time, 
unless  you  can  use  them  up  yourself  or  sell  them? 

Mr.  White.  Yes.  We  frequently  carried  a  million  or  a  million 
and  a  half  dollars  worth  of  wool,  because  there  was  no  market  for 
it.  The  kind  of  wool  the  packer  makes  is  something  that  is  affected 
by  the  style.  The  style  of  cloth  they  are  making  makes  a  very  active 
demand  on  pulled  wool,  which  is  the  kind  the  packers  make.  That 
makes  a  market  every  30  days.  That  is,  last  month's  this  month,  but 
we  get  into  the  time  when  we  have  to  carry  June  and  July  wool 
into  April  and  May  of  the  next  year. 

Mr.  MoBSB.  But  is  not  there  quito  a  demand  ior  tallows,  for  in- 
stance? Tou  do  not  have  to  carry  those  so  l(ui^? 

Mr.  White.  No.  Tallow  to-day  is  very  activei  becausei  they  wnat 
the  tallow  f  <n:  glycerin* 


72     MAXIMUM  PROFIT  LIMITATION  ON  M£AT-PACKINQ  INDUSTRY. 

Mr.  Morse.  Has  it  always  been  that  way  ? 

Mr.  White.  No.    Sometimes  we  have  had  three  or  four  months' 
production  of  tallow  piled  up  here  and  we  did  not  know  what  to 

4MHnir.  McMra.  I  suppose  that  is  true  as  regards  other  by-products? 
^IpMr.  WHrrm.  Yes.  Fw  instance,  pig  fats;  we  have  got  2,000,000 
fmmdB  of  pig  fat  in  the  cooler. 
Come  on  in,  Mr.  Armour.  ' 
(Mr.  J.  Ogden  Armoor  here  entered  the  room.) 
Mr.  Whitb.  Mr.  Armour,  this  is  Mr.  Morse. 
Mr.  Armour.  Glad  to  see  you,  Mr.  Morse.  I  just  came  up  to  show 
you  what  I  look  like. 

Mr.  Morse.  We  are  just  trying  to  get  an  education  in  the  beef 
industry,  Mr.  Armour. 

Mr.  Armour.  We  want  to  tell  you  ever thing  we  know,  because 
we  think  the  more  you  know  the  better  it  will  be  for  us. 

Mr.  Morse.  I  appreciate  that.  This  is  a  great  study.   You  may 
proceed,  Mr.  White. 
Mr.  White.  Your  last  point  was  carrying  great  quantities  of  stuff. 
Mr.  Morse.  Yes. 

Mr.  White.  Just  now  we  are  in  a  market  with  oiir  pork  meat  of 
uncertainty.  The  Allies,  the  British  purchasing  buyer  has  come 
along  here  and  bought  the  choice  cuts  out  of  the  hogs,  and  has  left 
the  undesirable  cuts  in  our  cellars.  We  have  got  150,000,000  pounds 
of  product  of  that  kind,  just  pork  products,  on  which  the  market 
could  ffo  off  4  or  5  cents  a  pound  between  now  and  the  time  it  would 
he  sold.  Now,  it  is  a  kma  of  product  that  you  can  not  go  out  and 
force  a  sale  on.  The  great  part  of  it  has  to  wait  until  the  southern 
cotton^picklii^  time  starts  to  create  a  ^mand  for  it.  I  rtfer  to  the 
heavy  side  meats,  which  the  Allies,  Belgians  or  French,  have  not 
bought.  We  have  got  millions  of  pounds  of  that  product 

Mr.  M(«SB.  I  see  where  that  is  possible.  Now,  Mr.  White,  when 
you  are  carrying  large  quantities  of  stuff  like  that,  and  you  ai«  mak- 
ing up  the  inventory  to  figure  profits  and  loss,  how  do  you  value  that 
product,  these  by-products,  or  this  pork  you  have  been  talking  about, 
or  these  hides,  or  things  of  that  kind  ? 
Mr.  White.  When  we  take  the  hide  off  to-day  we  credit  our  beef 

account  

Mr.  Morse.  With  what  value? 

Mr.  White.  With  the  value  as  near  the  market  as  we  know  the 
market. 

Mr.  Morse.  As  near  the  market  as  you  know  it? 
Mr.  White.  Yes. 

Mr.  Morse.  But  you  do  not  always  know  the  market  ? 
Mt.  Whits.  No.  I  will  give  you  a  point.  In  January,  February, 
and  March  of  this  yeaz^ we  were  selling  hides  in  December  at  35 
cents  for  natives,  and  branded  hides,  I  think,  were  selling  around  28 
cents.  Now,  the  hides  going  to  the  cellar  at  that  tune  were  credited 
to  the  beef  account  at  the  cellar  ei^pense  off  of  the  market.  We 
know  what  the  hide  shrinks  and  we  khow  what  it  costs  to  salt  it  and 
put  it  out  I  do  not  know  what  the  mHigin  is.  Maybe  you  do.. 
Mr.  Armour.  Fifty  cents  a  hide. 
Mr.  Wsm.  U  would  be  abdot  a  cent  a  pound. 


KAZIMUM  PnOFIT  LIMIIAXION  ON  1CS4T-PAGKIKQ  IHDU8XBT.  73 

Mr.  Morse.  The  fact  is  right  there  your  market  price  is  uncertain? 

Mr.  White.  Very  uncertain.  We  put  those  hides  away;  the  De- 
cember, January,  and  February  hides  just  piled  up.  There  was  no 
trade.  The  reason  there  was  not  any  trade  was  on  account  of  con- 
ditions regarding  the  leather  situation  in  Washington.  Everybody 
was  waiting  to  see  what  the  Quartermaster's  Department  was  going 
to  do.  But  we  keep  on  figuring  those  hides  that  way.  Now,  when  we 
cl<^ed  our  books— in  the  closing  after  January  we  inventoried  our 
hides  at  i^at  then  the  market,  which  was  2  or  3  cents  a  pound 
lower,  and  we  took  a  loss  on  our  hide  account  of  $700,000.  The  sub- 
sequent closing  to  that,  there  was  still  no  market  for  hides,  and 
those  hides  that  had  been  selling  for  36  cents  as  natives  sold  down 
to  24  cents,  and  hides  selling  at  28  <Hr  29  ceats  bM  as  low  as  16 
cents,  with  the  packers  carrying  that  load  of  hides,  and  in  the  subse- 
quent dosing  we  took  another  loss  of  about  $800,000.  That  loss 
appears  on  the  account  here  under  hides,  but  it  is  a  dressed-beef  loss. 

Mr.  Morse.  In  other  words^  you  have  and  will,  through  necessity, 
take  either  a  profit  or  a  loss  in  your  departan^tal  accounts! 

Mr.  White.  Yes;  always. 

Mr.  Morse.  It  is  either  a  profit  or  loss  one  way  or  the  other,  and 
you  are  never  certain  of  the  market. 
Mr.  White.  Never  certain  of  the  market  on  your  by-products. 
Mr.  Morse.  Yes. 

Mr.  W'hite.  To-day,  by  reason  of  the  fact  that  the  Hide  and 
Leather  Control  Board  have  placed  a  maximum  price  on  hides  and 
by  reason  of  the  fact  the  tanners  of  the  countrv  are  overloaded  with 
quartermasters'  orders  for  leather,  we  know  what  the  prices  of  hides 
are-  We  have  sold  all  our  hides  for  the  next  month  at  the  price  that 
has  beoi  set  Now,  there  won't  be  any  fluctuation  in  the  hide  account 
or  the  beetf  account  for  that  reason. 

Mr.  lioBSi.  Tou  think  it  is  almost  an  impossibility  to  arrive  at 
the  cost  m  the  packing  industry  on  account  of  the  necessity,  as  vou 
explained  it,  of  taking  an  interd^rtmental  profit  or  loss  as  vou  so 
along?  V  & 

Mr.  Wkfte.  You  can  arrive  at  the  today's  value. 

Mr.  Morse.  That  is  not  absolute,  is  it,  because  you  do  not  know 

the  market? 

Mr.  White.  But  you  can  not  make  it  absolute  on  something  that 
may  not  sell  for  30  days,  90  days,  or  6  UKffiths. 

Mr.  Morse.  Or  a  year. 

Mr.  White.  Or  a  year.  But  in  the  transfer  from  the  main  values, 
cattle  and  hogs  and  sheep,  of  the  by-products,  the  only  way  we  can 
run  our  busmess  with  any  intelligence  is  to  transfer  that  product  as 
near  the  then  market  as  our  figures  can  show. 

Mr.  Morse  How  do  you  determine  as  near  the  then  market  in 
making  up  these  charges,  these  interdepartmental  charges:  how  do 
you  arrive  at  that  ?  ®  ' 

Mr.  White.  To-day's  sales  on  hides  are,  we  will  say,  at  35  cents 
for  native  steers.  There  is  no  question  about  that.  That  is  the 
market.  You  can  s^U  all  the  hides  you  can  get,  according  to  what 
your  experience  has  brought  vou.  ^ 

flBj^^SE.  True,  but  I  (fid  not  want  some  unfamiliar  mind  to 
Tti^fg/f^noord  and  misunderstand  it 


74     XAXUCUM  PBOFIX  UMITAXI017  OK  HfiilT-PACKINa  IKDUflXBY. 


Mr.  Armour.  Of  course,  that  would  depend.  You  asked  the  ques- 
tion if  it  would  be  possible  to  determine  the  cost.  It  would  depend 
whether  there  was  a  ready  sale  for  the  by-products.  At  one  time 
of  the  year  there  might  oe  a  ready  sale  and  another  time  of  the 
year  the  market  might  be  down  and  you  have  to  hold  it.  That 
would  be  the  answer.  So  the  prices  you  thought  you  could  get  for 
your  goods,  if  there  was  a  ready  sale  and  you  could  sell  it  reason- 
ably soon,  you  could,  but  if  you  had  to  hold  it  there  would  always 
be  tile  same  doubt  whether  you  could  get  what  you  thought  you 
could  the  dayyou  took  it  off,  or  have  to  take  a  losa  on  it  la  uiat 
eorrec^li&.  Wnitef 

Mt.  Wmm  Yes.  The  aanie  thing  is  tme  here,  Mr.  Mcnrae,  on 
the  regular  line  of  stuff.  How  are  you  going  to  determine  cost  on 
a  ham.  We  have  to  figure  hams  against  the  hog,  on  what  is  the 
cadi  market  for  a  green  piece  of  meat  But  if  all  the  packers, 
Ajmour,  Swift,  Morris,  and  Wilson,  were  to  throw  all  their  green 
hams  on  the  market,  a  total  day's  product,  there  would  not  be  any 
market  for  such  an  amount.  So  all  these  imcertainties  of  values 
create  the  necessity  for  some  kind  of  reserve  to  protect  yoursell 
You  see  what  happens. 

Mr.  Morse.  That  is  just  ordinary  business? 

Mr.  White.  As  I  outlined  on  tne  hides,  we  would  have  sold  our 
hides  any  one  day  in  the  first  three  months  of  this  year  if  we  could 
have  got  a  buyer  for  them,  but  every  day  we  did  not  sell  them  the 
price  was  less,  and  finally  we  had  a  million  and  a  half  dollar  loss 
against  our  hide  account. 

Mr.  Armour.  We  put  down  as  between  departments  what  we 
figure  the  market  is.  We  figure  that  mai^et  accordin<^  to  the  las^ 
siQe.  That  is  the  way  anyb[>dy  would  figure,  according  to  about 
how  the  goods  were  selling  last  If  fim  can  sell  than  reiulily,  then^ 
is  no  qu^ion  about  arriving  at  the  cost,  but  if  you  lutve  to  hold 
Uiem  for  some  reason  we  have  not  any  ccmtrol  over,  that  is  the  sale 
and  demand,  we  hold  them,  but  the^  may  go  up  or  tiiey  may  go 
down.  Mr.  White  does  not  mean  to  say  they  always  go  down,  at  uL 

Mr.  Morse.  You  have  got  a  profit  or  loss  right  there. 

Mr.  AufonB.  Yes.  It  does  not  always  go  down  at  all.  It  may  go 
up  and  we  have  a  profit.  But  there  is  that  uncertainty  that  no  one 
can  tell.  You  could  not  tell.  Nobody  could  tell. 

Mr.  Morse.  I  can  appreciate  that. 

Mr.  Armour.  It  is  simply  like  we  ship  500  pounds  of  pork  loins 
to  New  York  or  any  town  down  there.  We  think  we  might  get  30 
cents  for  it,  or  28  cents  for  it,  but  it  might  strike  a  warm  day,  or 
we  might  get  31  cents  for  it.  It  either  goes  up  or  goes  down, 
so  we  do  not  control  that.  It  is  a  physical  impossibility  for  any- 
body to  control  it. 

I  am  very  glad  to  have  seen  you.  I  wanted  to  see  what  you  looked 
like.  I  am  glad  you  have  come,  and  it  is  unnecessary  to  say  our 
plant  is  open  to  you.  Anything  you  do  not  understand,  just  ask  us, 
because  we  are  better  off  if  we  can  have  you  understand  everything 
about  the  packing  business.  There  are  no  secrets  about  it  There 
is  not  anything  strange  about  it  at  all,  but  there  are  conditions  an 
outsider  would  not  understand,  naturally,  immediately,  because  it 
m  a  bosmesB  that  is  diffeienl  fioai  uny  othmr  business.  You  can 


MAXIMVM  PBOFIX  LIMITATIOJJ  ON  MEAT-PACKING  INDUBXBT.  7& 

put  a  price  on  any  other  thing— steel  rails  or  iron— and  it  stays 
there.  But  here  is  something  that  deteriorates;  sometimes  we  get 
less  than  we  figure  for  it,  and  sometimes  we  get  more.  I  am  glad 
to  have  seen  you. 

Mr.  MoBSE.  I  am  glad  to  have  seen  you,  Mr.  Armour. 

Mr.  Akmoub.  Qood  day,  gentlemen. 

(Mr.  Armour  here  left  the  room.) 

Mr.  Morse.  Now,  Mr.  White,  in  view  of  what  you  said,  do  you 
think  that  these  regulations,  having  only  been  in  force  from  Novem- 
ber 1,  1917,  to  date,  that  we  have  got  a  sufficient  period  of  time  for 
a  fair  test  as  to  the  workability  of  these  regulations,  in  view  of  the 
f ac^  as  you  have  suggested,  that  there  are  hold-over  inventories, 
stuff  that  you  could  not  use,  which  you  have  taken  up  at  a  more  or 
less  arbitrary  price,  the  best  amount  you  could  form  in  your  judg- 
ment, which  have  been  taken  over  from  time  to  time  in  these  in- 
ventories, so  that  profits  or  losses  could  not  be  considered  with  any 
depee  of  accuracy  for  such  a  limited  time;  is  that  your  opinion? 

Mr.  White.  That  is  exactly  my  opinion.  In  my  25  years'  expe- 
rience in  this  business  I  have  never  seen  two  years  of  it  »^n^jmi^ 
the  same. 

Mr.  Morse.  That  is  on  account  of  the  hold-over  part 

Mr.  White.  It  is  a  seasonal  business. 

Mr.  Mobse  (continuing).  Is  it  not? 
•  White.  It  h  hold  over.  There  are  so  many  things  that  enter 
into  the  final  profit  and  loss  of  this  business  that  you  can  not  on  a 
six  months'  application  of  rules  come  to  a  conclusion.  I  do  not  care 
what  conclusion  you  come  to  to-day,  or  any  of  your  investigators, 
I  will  guarantee  in  six  months  from  now  they  will  change  them 
themselves.  You  simply  can  not  do  it,  Mr.  Moise. 

I  would  say  this,  however,  in  my  argument  about  the  elimination 
of  these  accounts.  The  reason  they  were  put  in  there,  I  assume,  was 
m  order  to  get  a  balance  on  them,  to  get  a  viewpoint  of  them  to 
see  how  they  were  handled.  I  assume  that  was  the  reason ;  because 
I  can  not  assume  there  was  any  good  reason  for  limitation  of  a 
busmess,  pork  and  beanbusiness,  the  mincemeat  business,  the  animal- 
hmited,  and  I  refer  to  the  leather,  fertilizer,  soap  and  the  glue 
business,  pork  and  bean  business,  the  mincemeat  business,  the  animal- 
oil  business,  and  the  city-fat  business. 

Mr.  Morse.  But  you  contend  the  business  has  to  be  viewed  as  a 
whole  and  there  can  not  be  a  separation  of  the  industry,  that  is  the 
meat-packing  business  and  the  by-products,  for  economical  reasons? 

Mr.  Wnrra.  That  is  what  I  was  going  to  answer  you.  For  econo- 
mic reasons  it  would  be  impracticable  to  do  it.  It  would  be  a  willful 
waste  of  effort  and  of  efficiency. 

Mr.  Morse.  Did  you  desire  to  say  something,  Mr.  Hemphill  ? 

Mr.  Hemphill.  I  was  going  to  ask  if  you  meant  a  fair  separation 
of  pronts  as  between  those  two  classes,  class  1  and  2. 

Mr.  Morse.  I  did  not  mean  that  at  the  time  I  was  talking- 
Mr.  Wnn-E.  You  were  talking  of  the  business  f 

Mr.  Morse-  I  was  taUdng  of  the  business  from  an  economical 

standpoint. 

Now,  Mr.  White,  according  to  these  regulations,  it  is  necessarv  to 
divide  your  capital  invested  into  three  classes.  Have  you  found  anv 
difficulty  in  making  that  division  of  capital!  *vwu*  anjr 


Mr.  Whttb.  No.  ^ 
Mr.  Hemphill.  No,  sir;  none  at  all. 

Mr.  Moan.  Does  Ui*t  division  show  your  specific  accounts  on  your 
books  ? 

Mr.  White.  I  think  not.  Mr  Hemphill  can  answer  that. 

Mr*  Hemphill.  You  mean  between  classes?  In  some  cases  yes,  and 
in  other  cases  we  have  had  to  divide  the  capital  between  the  classes 
on  the  basis  we  thought  was  fair. 

Mr.  Morse.  In  other  words,  as  far  as  your  books  are  concerned, 
you  have  no  record  of  this  division.  It  is  simply  with  you  a  statis- 
tical record  that  you  worked  out  to  the  best  of  your  ability  ?  . 

Mr.  Hemphill.  No,  sir.  For  instance,  with  your  leatlier  business 
it  is  absolutely  distinct  in  every  way.  The  leather  tanneries  are  sep- 
arate and  apai-t  from  the  packing  business.       ^  . 

Mr.  Morse.  But  you  could  not  do  that  in  some  instances,  where  yon 

are  mixed  up  altogether!  ^,     i.  ^. 

Mr.  Hemphiix.  We  do  in  most  cases.  For  instance,  the  ferti- 
lizer and  curled  hair,  and,  as  Mr.  White  speaks  of,  the  Thirty-first 
SU«et  industry,  a  mile  and  a  half  away  from  here,  with  their  own 
executive  officers  and  thieir  own  accounting  force,  and  entirely  sep- 
arate from  the  Armour  &  Co.  business  here. 

Mr.  WnrrE.  The  only  thing  we  do  for  them  is  to  furnish  them 
money  to  do  business  on. 

Mr.  Hemphill.  And  charge  them  for  it. 

Mr.  WnrrE.  That  is  only  a  matter  of  banking. 

Mr.  Morse.  Could  I,  as  a  rank  outsider,  come  into  your  books 
without  any  steering  or  coaching  from  you  and  could  I  determine 
your  investment  in  these  various  classes? 

Mr.  Hemphill.  Very  easily. 

Mr.  Morse.  I  could  do  it  with  a  little  study. 

Mr.  Hemphill.  With  a  little  study  it  would  not  be  hard  at  all. 
Such  divisions  as  we  have  had  to  make  have  been  alone  logical  lines, 
and  in  most  cases  submitted  to  Mr.  Durand  and  Mr.  Wnite,  and  they 
saw  the  feasibility  and  approved  it.  "       , .      .       •  , 

Mr.  White.  I  do  not  think — ^before  we  get  on  this  i>omt — do  not 
think  there  is  any  question  in  your  investigators'  minds  about  the 
segregation  of  these  various  departments  I  nave  talked  about  We 
have  transferred  the  product  at  the  transfer  value;  that  is  as  near 
the  market  as  possible.  Therefore,  the  class  1  from  which  these  by- 
products come  gets  the  true  accounting  value  of  that  product.  So 
that  that  would  be  the  onlj  suspicion  which  would  be  about  those 
accounts  from  a  rank  outsider ;  the  fact  that  they  get  some  benefit 
from  the  major  business  like  the  live  cattle,  by  transfer  to  the  glue 
account,  and  bones  at  some  arbitrary  fixed  price  that  might  not  seem 
to  be  fair,  but  I  think  we  satisfied  Mr.  Chase  in  his  accounts  that  that 
transfer  basis  of  ours  is  all  it  should  be,  so  then,  to  our  notion,  we 
have  satisfied  the  Food  Administration  and  the  Federal  trade  in- 
vestigators up  to  date  on  our  segregation  and  on  our  method  of  seg- 

'^r.  Morse.  I  will  say  this,  Mr.  White,  as  a  rank  outsider  here, 
what  would  occur  to  mv  mind  is  the  value  or  the  valuation  of  these 
assets,  but  I  want  to  take  that  up  with  you  a  little  later.  I  want  to 
ask  ^ou  now  if  you  are  familiar  with  the  Canadian  rules  and  regula- 


M4XI1I1UM:  PBOFIT  LIMITATION  ON  MEAT-PACKING  INiyilBlST.  Il 

tions.  The  basis  there,  I  presume  you  know,  is  entirely  diferent  frwn 
the  United  States  regulations.  WKito. 
Mr.  Hemphill.  I  do  not  beUeve  you  have  seen  these,  Mr.  White. 

^  te.^MoM^'^LupposeMt.  Hemphill  answers  that  question. 

Mr.  Hemphill.  I  am  familiar  with  them  to  a  certain  degree. 

Mr.  Morse.  Do  you  think  the  Canadian  reguktions,  if  applied  here 
inthe  United  States,  would  be  moie  workable  or  more  equitable  than 

*^l£r'^2S^^Xv^^t  given  a  great  deal  of  attention  to  that 
for  the  simple  reason  that  our  Canadian  business  is  not  of  suthcient 
impOTt^      justify  it.    With  us  the  Canadian  food  regulations 
ST^^i^  making  out  reports,  because  we  have  not  made  any 

"^u/wu^W^^^^  a  committee  to  Canada  about  two 

weeks  ago  to  answer  whether  or  not  we  would  close  up  that  plant. 
Mr  Morse.  The  regulations  are  in  force?  ,  ,  ,  .  ,  „^ 
Mr.  ^MPHiLL.  The  regulations  are  in  force,  but  the  forms  have 
not  been  sent  out.  As  I  say,  all  it  means  to  ^V^J^^^%""te"o? 
the  reports,  so  I  have  not  sent  the  regulations  downto  White  or 
any  of  our  executives  here,  because  it  did  not  mterest  us.  We  have 

^rWH^B.^^^^^^^  in  Canada  is.  on  a  ve^  ^^^ffl 
hfl^iq  The  Dork  industry  over  there  is  being  run  at  a  fngbtful  KWB 
to  day,  and  Wt  will  Jdone  I  dont  know,  but  so  far  as  the  l«g«- 
ktions  on  the  business  are  concerned  we  have  not  paid  very  "nuch 
attention  to  them.  We  have  not  pot  to  tiw  ptace  wWb  the  limit-r 
tions  of  the  Government  were  of  mterWt. 
Mr.  Chase.  Is  Hamilton  your  <Mily  plMi>t  therel 

Mr  Mo,^  S2  ^fL^^d,  Mr.  White,  any  other  regulation 
wUch  J^Hd^would  be  more  ^qniUble  or  effective  than  the  one 
wMchBnowin  foice?  Have  you  any  suggestions  you  want  to  make? 

Ton  see  we  are  searching  for  ideas.  t  ^t,-  i  ;a 

Mr!wmrE.  I  think  I  have  no  particular  suggestion  I  think  with 
theroi^  changes  in  the  present  regulation  which  is  merely  the 
a^oU^Kf  what  departnient  of  that  article  2  the  various  de- 
Si^nte  are  put  under,  I  think  with  that  the  rules  and  regulations 
are  as  fair  as  we  could  hope  for. 

Mr  Morse.  I  notice  that  you  close   ,  x  ™ 

Mr  Whife.  Pardon  me  just  a  minute.    You  have  now,  «s  I  un- 
derstand it,  the  Agricultural  Department  which        tak^^VMrt^  . 
fertUizer  businessf  working  on  it,  and  the  War  Industnw  BoMd 
have  a  committee  kt  work  with  the  tanners,  tc  mate  a  limitation  on 
the  tanning  industry,  so  it  will  seem,  that  those  two  aooo«nt8  will 

take  care  of  themselves  in  that  direction.  ,   u 

Mr.  Hemphill.  Pardon  me.  WhiU  tiie  fertabmig  deiiMtment  » 
working  under  direction  of  the  Bureau  of  Agriculture  as  far  as  pncM 
Tre  concerned,  the  Food  Administrsjon  or  the  Federal  Trade  Com- 
mission still  say  that  they  regard^^Mitili^ •«  ™ 

class  2.  That  seemed  rether— — ,  ^  •      ^.v,     u  * 

Mr.  Whim.  The  fertiliser  business,  if  you  get  into  that  before 
you  «et  away  horn  this  general  pMkmg  industry,  you  will  find  how 
bttle  in  the  f<atilim  bamnaB  thepiidkmg  industcy  w  a  part. 


78   MAXIMUM  PBonr  uMixAmir  m  UMkr-wAoam  unwiwrni, 

Mr.  Hemphill.  Less  than  20  per  cent  of  the  riiw  materials. 
Mr.  White.  We  buy  pyrites  in  Spain ;  we  buy  nitrates  in  Chile: 
we  buy  phosphate  rock  in  Florida,  and  generally  all  that  we  use 
out  of  the  packing  house  is  the  animal  fertilizer,  which,  as  Mr.  Hemp- 
hill has  stated,  is  less  than  20  per  cent  of  the  raw  material  that  soes 
mto  our  fertilizer  business. 

^  ^r.  Morse.  Eight  there  I  want  to  ask  you  a  question  that  is  en- 
tirely offthe  subject,  but  is  interesting  to  me  from  an  economic  stand- 
point. ^  How  many  governmental  departments  are  investigating  or 
mpmnsing  or  have  something  to  do  with  the  packing  industry  at 
tbe  jpiesent  tinMi 

Mr.  Wmm  Of  course  the  main  department  with  which  we  are 
m  business  aU  the  tune  is  the  Boreau  of  Animal  Industry,  part  of 
feecretary  Houston's  department. 

Mr.  Morse.  Yes. 

Mr.  White.  Then  the  food  industry,  Food  Administration.  It  is 
not  fair  just  to  stop  by  saying  the  Food  Administration,  because  it 

runs  into  many  different  channels. 

Mr.  Morse.  I  want  to  learn  the  different  govemmiiital  depart- 
ments that  are  investigating  or  have  some  snpervisioii  cmr  the  aif- 

ferent  phases  of  your  business  right  now. 

Mr.  White.  There  is  the  Food  Administration,  and  I  will  say  we 
must  be  making  on  an  average  of— what  is  it-^  reports  a  month 

for  the  Food  Administration  or  500? 

Mr.  Hemphill.  I  don't  know  just  how  many,  Mr.  White.  A  irreat 
many.  ® 

Mr.  WnrrE.  We  must  be  making  2,000  reports  a  month  to  the  Food 
Administration  on  our  business,  from  all  our  branches  of  it 
Mr.  MoBSB.  I  see.   What  other  departments? 

Mr.  Whitb.  Then  the  Treasury  Department,  by  reason  of  the  but- 
terme  and  oletx, 

Mr,  HiMPwifi^  And  the  Fedmd  Trade  Commission. 
Ml!.  Wans.  And  the  Federal  Trade  Ccnnmission.  That  is  aU  at 
present. 

Mp.  Chasi.  Is  your  kid  ocunpound  uifder  the  Food  Administra- 
tion! 

Mr.  Wnrns.  I  think  so.  Then,  besides  the  Bureau  of  Animal  In- 
dustry branch  and  the  Agricultural  Department,  we  have  ttie  gen- 
eral supervision  of  the  Department  of  Agriculture.  ' 

Mr.  MoBSB.  That  is  not  m  this  inTBstic^aon.  It  is  just  a  matter  of 

curiosity. 

Mr.  Hemphill.  Mr.  Chase  asked  if  the  lard  compound  was  under 
the  Food  Administration.  As  far  as  the  regulation  of  profits  is 
concerned  in  classes  1, 2,  and  3,  it  is  in  class  3. 

Mr.  White.  Yes. 

Mr.  Hemphill.  Lard  compounds. 

Mr.  White.  He  knows  that,  I  guess. 

Mr.  Chase.  No  ;  I  did  not  mean  that. 

Mr.  Morse.  Mr.  White,  I  notice  in  the  rules  and  regulations  that 
the  operation  of  the  stockyards  is  in  class  3.  Don't  you  think  that 
4^ould  be  put  in  class  If 

Mr.  Wfiam  I  do  not  see  why  it  has  any  bearing  on  class  1. 

Mr.  MoMk  The  packers  own  the  stockyards,  don't  they  ? 


KAxncuM  nomt  ixmrAnm  m  mair-PACEDrG  ihditsibt.  79 


Mr.  Whotj.  No. 

Mr.  MoBSB.  Control  them,  through  stock  ownership.  That  is,  some 

one  or  two  or  three.  Thm  is  an  interest  there. 

Mr.  White.  As  far  as  our  company  is  concerned,  we  do  not  con- 
trol any  stockyards. 

Mr.  Hemphill.  Two  small  yards,  Jacksonville  and  Hamilton. 

Mr.  White.  We  do  not  call  them  plants. 

Mr.  Morse.  Maybe  I  used  the  word  "  control "  wrongly,  I  meant 
you  are  interested  in  the  stockyards ;  financially  interested. 

Mr.  White.  Here  is  the  history  of  the  stockyards.  If  you  will  get 
hold  of  some  of  the  old-timers  around  the  stockyards  they  will  tell 
you  that  a  stockyard  never  amounted  to  anything  anywhere  in  the 
country  until  it  got  a  big  packer  into  that  yard. 

The  Denver  stockyard  was  kicking  around  here  for  15  years ;  did 
not  have  any  market  there.  A  man  would  get  there  with  a  train  of 
cattle,  and  there  would  be  nobody  to  buy  it.  He  would  have  to  feed 
them  and  water  them  and  sell  a  few  odd  cattle  to  the  trade;  that  is, 
the  local  birtchers,  and  then  go  over  to  tl^  Missouri  Biver.  If  he  had 
to  go  to  Kansas  City  20  years  ago,  there  would  be  no  trade  tb  take 
care  of  his  cattle,  and  he  would  come  to  Chicago.  Now,  the  big 
packer  has  gone  into  those  yards  and  developed  a  market,  created  a 
market.  Until  the  big  pack^  got  into  the  sto<^ards  it  did  not 
amount  to  anything. 

Mr.  MoBSE.  The  big  packers  are  in  tiie  stockyards  at  the  present 

time. 

Mr.  White.  They  own  stock  in  the  stockyards.  Mr.  Armour  owns 
stock  in  the  Omalia  stockyards.  Armour  &  Co.  has  no  interest  in  it. 
In  Kansas  City,  Mr.  Armour  does  not  own  anything  or  Armour  & 
Co.  does  not  own  anything.  I  think  the  Fort  Worth  yards,  Armour 
and  Swift  own  the  majority  of  the  stock  of  the  company,  but  there 
are  other  stockholders  there.  I  can  not  see  why  the  stodkyards  is  a 
part  of  the  beef  and  pork  business. 

Mr.  Morse.  I  just  wanted  to  get  your  opinion  on  it. 

Mr.  White,  I  have  before  me  the  balance  sheet  of  Armour  &  Co. 
as  printed  by  you  in  your  report  to  shareholders.  I  find  on  that  you 
have  total  assets  of — I  understand  you  have  fixed  assets  in  thousands 
of  dollars,  103,802.  That  is  in  thousands  of  dollars. 

Mr,  WmA  That  is  millions. 

Mr.  MoBSB.  Millions,  yes. 

Mr.  WRns.  Tes. 

Mr.  MoBSB.  Does  that  correctly  represrait  the  value  of  those  assets  ? 
Mind  you,  I  understand  that  those  figures  are  your  book  value,  but 
is  the  value  of  those  assets  that  figure  or  are  they  more  or  less? 

Mr.  White.  It  seems  to  me  the  answer  to  that  ques(i<m  would  be 

that  it  represents  a  book  value  but  not  a  replacement  value.  For  in- 
stance, I  think  it  has  been  almost  15  years  since  we  had  an  appraisal 

of  our  properties. 

Mr.  Morse.  These  values,  then,  represent  the  value  15  years  ago. 

Mr.  White.  When  was  our  appraisal  made  ? 
Mr.  Hemphill.  I  think  about  11  or  12  years  ago. 
Mr.  White.  Eleven  or  twelve  years  ago. 
Mr.  Hemphill.  1906,  I  think. 

Mr.  White.  Here  is  the  point  on  that :  If  we  put  on  a  new  building, 
as  we  are  doing  all  the  time,  there  is  one  feature  about  this  business 


80     MAZIICUM  jraonr  LOCITATIOir  OK  MSikT-PACKnrG  INDUSIBT. 

that  so  few  people  understand— the  need  for  replacement  conditions. 
I^or  instance,  the  history  of  Armour  &  Cq.  shows  they  have  never 
paid  more  than  $2,000,000  dividends  in  any  one  year  since  they  have 
paid  dividends,  but  all  the  earnings  over  that  have  gone  back  to  the 
property.  If  you  have  studied  our  balance  sheet  or  record,  you  have 
found  that  out.  When  you  asked  me  if  that  $103,000,000  is  a  fair 
value,  I  would  say,  dating  back  to  the  appraisal  of  the  property  11 
j^ears  ago  and  then  adding  the  reconstruction  period  since  then,  that 
IS  the  value,  but  it  does  not  represent  any  accrement  in  value  like  you 
would  get  on  an  appraisal  to-day. 

Mr.  Hbmphill.  It  is  the  appraisal  value  plus  the  cost  of  new  con- 
struction since. 

Mr.  White.  The  appraisal  value  11  years  ago  plus  the  cost  of  new 
construction  since. 

Mr.  MoKSE.  In  other  words,  that  represents  the  appraisal  value  of 
your  land,  real  estate,  and  machinery  11  years  ago  plus  any  addi- 
tions, betterments,  replaceftients  aipoe  that  timet 

Mr.  Whitb.  Yes. 

Mr.  Morse.  Is  that  ri^^t 

Mr.  White.  Yes. 

Mr.  Hemphill.  Except  the  replacements  

Mr.  Morse.  I  presume,  however,  you  have  set  up  or  jcluamd  off 

a  reserve  for  depreciation? 
Mr.  Hemphill.  Yes. 

Mr.  White.  We  have  a  regular  policy  with  respect  to  taking  care 
of  our  depreciation.    What  is  the  percentage? 
Mr.  Hemphill.  Five  per  cent. 

Mr.  Mouse.  May  I  ask,  Mr.  Hemphill,  then,  what  is  your  policy 
as  to  d^reciation  on  buildings  and  machinery? 

Mr.  HsxpHiLL.  At  the  present  time  we  charge  off  5  per  cent  on 
buildings  and  machineiy. 

Mr.  MoRSB.  Do  you  credit  that  right  against  the  account? 

Mr.  Hemphuju  We  credit  it  to  reserve  or  depreciation  and 
against  that  reserve  or  depreciation  we  charge  renewiJs  and  replace- 
ments. I  think  that  is  standard.  I  may  say  that  our  standard  in- 
structions were  written  up  some  seven  years  ago,  standard  instruc- 
tions to  all  our  packing  plants  in  the  dispositicm  of  their  repairs 
and  all  expenditures  for  repairs,  replacements,  and  improvements, 
and  that  was  adopted  by  the  Internal  Revenue  Department  at  Wash- 
ington as  being  standard.    I  think  it  was  found  quita  gatiflfaftoiy. 

Mr.  Whipple.  Have  you  got  a  copy  of  those! 

Mr.  Hemphill.  Yes. 

Mr.  Whipple.  Can  you  get  us  a  copy! 

Mr.  Hemphill.  Yes. 

Mr.  Morse.  At  the  time  this  appraisal  was  made,  what  values 
were  used  by  the  appraisers?  Replacement  values  at  that  time  or 
eoet  values.   Do  you  remember,  Mr.  White? 

Mr.  Hemphill.  I  am  not  familiar  with  that. 

Mr.  Whthb.  The  American  Appraisal  Co.  made  the  appraisal 
with  the  assistance  of  Price,  Waterhouse  A  Ca 

Mr.  MoBSi.  And  you  have  those  reports  now  f 

Mr.  White.  Yes,  they  are  available.  We  had  that  appraisal 
made  for  the  purpoee  of  a  bond  ima%. 


i[.  81 


Mr.  Hbmphill.  We  can  give  you  that  lat«r  if  you  think  tiiat  is 

necessary. 

Mr.  Morse.  In  your  opinion  then,  these  assets  are  oorrocty  that 
is  the  valuation  of  them  w  oofKwt     Qib  present  time? 
Mr.  White.  Yes. 

Mr.  MoBSB.  And  thm  is  no  reason  why  they  should  be  written  up 
or  down. 

Mr.  White.  The  only  thing  is,  in  fairness  to  those  figures,  in  view 
of  the  fact  that  that  is  11  years  since  we  have  had  the  appraisal  on 
our  property,  and  our  property  has  increased,  has  more  than  doubled 
in  11  year&— I  mean  our  net  property  values  have,  our  net  assets 
have,  for  instance — that  I  would  think  that  if  we  wanted  to  arrive  at 
the  true  and  proper  investment  it  would  be  fair  to  have  a  new  ap- 
praisal sometimes.  We  have  not  felt  we  wanted  to  go  to  the  expense 
of  it.  It  is  a  big  job,  and  it  would  cost  a  couple  of  hundred  thoosaad 
dollars  probably,  ami  we  have  been  sort  or  satisfied  to  go  on  with 
Our  own  biEnneai  among  ourselves  as  it  is. 

Mt.  MoBSB.  So  you  &  not  at  the  present  time  contunplate  nuddng 
any  request  for  a  revaluation? 

Mr.  Whiib.  We  have  discussed  that  point,  Mr.  Morse,  simply  in 
fairness  to  our  business.  If  this  business  is  to  be  held  in  line  by 
limitations  and  regulations,  on  which  the  judgment  is  arrived  at 
from  our  competitors'  business  as  well  as  our  own,  in  fairness  to  us, 
we  ought  to  be  on  the  same  basis,  we  all  should  be  on  the  same  basis. 
In  other  words,  in  order  to  arrive  at  what  we  should  earn  on  a  9  per 
cent  limitation — if  Swift  and  Morris  and  Wilson  are  to  have  a  new 
valuation  as  of  date,  it  is  hardly  fair  to  take  Armour's  valuation  as 
of  11  years  ago. 

Mr.  Morse.  I  am  glad  to  hear  that.  I  think  you  all  ou^ht  to  be 
on  the  same  basis.  Of  course,  that  is  my  own  personal  opimmi. 

Mr.  White.  Of  course,  in  relatipn  to  this  concern,  by  the  very 
nature  of  it,  it  is  an  Armour  family  affair.  It  has  been  a  close  cor- 
poration. 

Mr.  MoRSB.  By  the  way,  may  I  ask  you  for  a  little  information 
there?  Do  Armours  own  all  of  the  stock,  the  whole  company? 

Mr.  Whtte.  Yes;  substantially  so. 
Mr.  MoBSB.  It  is  all  right  in  the  family. 

Mr.  Whiib.  Substantially  so;  yes,  sir.  I  mean  there  has  been  no 
reason  by  reason  of  the  nature  of  the  company  to  do  it.  We  have 
not  been  floating  stock;  we  have  not  had  to  sell  our  assets  or  put 
them  on  the  market,  so  that  Mr.  Armour  has  been  sort  of  self-satisfied 
to  go  on  the  way  his  business  was.  and  very  reluctantly  put  out  his 
first  $50,000,000  11  years  ago  in  bonds.  Business  got  so  big  he  had 
to  do  it. 

Mr.  Morse.  What  decision  did  you  come  to  about  this  revaluation; 
did  you  propose  to  let  that  drop? 
^  Mr.  White.  It  is  under  discussion  now. 

Mr.  Morse.  It  is  under  discussion  now  and  I  understand  there 
has  been  no  decision  ? 

Mr.  WnrTE.  There  has  been  no  decision.  We  may  ask  the  Federal 
Trade  or  the  Food  Administration  for  the  privilege  of  revaluation 
on  our  property,  the  privilege  of  writing  it  up.  We  do  not  have  to 

188888— S.  Doc.  no,  66-1  6 


82     MAXIMUM  FROfll  LUCIIAXIOXT  01^  MBAX-PAOKIHTQ  INDUSTRY. 

ask  them  for  the  privilege  of  revaluing.  We  mav  then  revalue  and 
then  ask  them  to  change  our  books  according  to  tne  basis  arrived  at. 

Mr.  Morse.  What  basis  do  you  think  should  be  used  under  your 
belief  in  revaluing  your  property?  Beplacement,  1918,  or  what  oate; 
1914,  or  cost,  construction  ? 

Mr.  White.  The  answer  to  that  would  properly  be  affected  by  the 
limitations  made.   For  instance  

Mr.  McttSB.  What  do  you  mean  by  limitations! 

Mr.  Whcis.  I  mean,  for  instance,  if  the  ruling  would  come  to  9 
per  cent  as  the  limit  on  whidi  you  can  figure  profit,  9  per  cent  of 
your  capital  invested,  and  there  is  no  chimce  in  the  miM  of  ever 
ffstting  any  num  than  <iiaL  certainlv  there  is  not  a  chuice  in 
the  world  but  what  we  would  want  mat  figured  on  replacements 
aa  of  date.  If  we  have  a  fire  here,  bum  down  a  million-dmlar  house, 
it  is  carried  at  a  millimi  dollars,  but  it  would  cost  us  a'million  and  a 
half  to  put  it  back  again.  If  we  are  going  to  limit  the  earnings 
of  the  business  permanently  or  for  any  protracted  period — ^we  wul 
assume  it  is  for  the  period  of  the  war — we  would  certainly  wish 
it  to  be  the  replacement  as  of  the  date  that  limitation  went  into  effect. 

Mr.  Morse.  You  mentioned  a  while  ago  regarding  the  issue  of 
bonds.  Do  I  understand  you  are  to  get  out  a  new  issue  of  bonds  ? 

Mr.  White.  We  are  at  present  working  with  the  bankers  on  an 
issue  of  $60,000,000. 

Mr.  Morse.  What  interest  are  those  bonds  to  bear! 

Mr.  White.  Six  per  cent. 

Mr.  MoBSE.  What  is  the  security — a  general  mortgage  against  the 
entire  business! 

Mr.  Whtte.  Yes. 
^  Mr.  MoB8E.  .Have  you  arranged  yet  as  to  the  flotation  price  of 
the  bonds  with  your  bankers! 

Mr.  Whtte.  I  would  rather  not  discuss  that.  If  you  want  light  on 
Uiat  and  will  interview  Mr.  CroU,  he  will  give  vou  all  the  data  on 
it.  I  could  just  as  well  do  it,  but  it  is  sort  ox  in  his  province  to 
handle  those  things. 

Mr.  MossB.  Just  for  the  purpose  of  discussion,  I  mi^t  say  I  have 
heard  there  is  an  arrangement  to  be  made  whereby  you  would  re- 
ceive net  for  those  bonds  about  92.   Is  that  more  or  less  correct! 

Mr.  White.  I  understand  it  is  more  than  that. 

Mr.  Morse.  You  will  get  more  than  that! 

Mr.  White.  Yes. 

Mr.  Morse.  How  much  more! 

Mr.  WnrrE.  I  will  answer  you  again  that  I  would  rather  you  ask 
Mr.  Croll  or  Mr.  Dunham. 
Mr.  Morse.  Who  are  they  ? 

Mr.  Whtte.  They  are  the  financial  executives  of  the  business. 
Mr.  MoBSi.  I  nc^  in  these  regulations  here  on  page  7,  under  the 
item  of  interest  it  piovidee  that — 

Any  excess  paymrat  of  interest  on  bonds,  notes,  biUs  or  accounts  payable 
«  above  the  rate'  of  5  per  cent  per  annum  may  be  diarved  to  operating  ezi>eii8e 
and  said  excess  to  be  computed  on  the  basis  of  the  aggrepite  Of  mnA  Inddbtod- 
ness  of  all  kinds  and  aggregate  interest  thereon. 

Is  it  your  interpretation  of  this  paragraph  that  I  have  just  read 
that  in  this  bond  issue  practically  1  per  sent  oould.  be  charged  to 
operating  expenset 


MAmcuM  PMOiiT  MmTATi0y  og  muoHfAmsm  uiiHiiiiiMe.  88 

Mr.  White.  I  would  asume  so. 

Mr.  Morse.  You  would  assume  that  was  true? 

Mr.  White.  Yes.  First,  the  5  per  cent  was  arrived  at  as  being  a 
fair  average  of  what  the  business  had  done  to  the  date  on  wluch 
the  regulation  was  made,  and  we  were  in  a  period  of  war,  with 
the  uncertainty  of  interest  rates,  and  the  point  was  made  we  can  not 
tell  what  we  are  going  to  be  required  to  pay  for  money,  and  it  would 
hardly  be  fair  that  we  would  have  to  borrow  money  to  conduct  a 
business  with  and  not  get  a  return  on  the  money  beyond  what  we 
have  to  pay  for  it.  We  go  out  and  borrow — our  statements  show 
we  are  eztoemely  heavy  borrowers,  and  within  the  last  month  you 
CQuld  not  get  money  at  less  than  7  per  cent.  Now,  we  are  limited 
to  5  per  tait  or  to  9  per  c^t  on  onr  capital  and  money  invested,  and 
paying  7  per  cent  for  part  of  it  we  are  not  getting  very  much  to  run 
on,  in  this  highly  speculative  business. 

Mr.  Morse.  Assume  fw  the  sate  at  argument  you  are  getting  net 
92  for  those  bonds. 

Mr.  Whux.  I  wish  you  would  not  inter]^  me  at  all  «m  the 

bond  issue. 

Mr.  Morse.  You  can  put  that  on  record  if  you  want.  F<Mr  the  sake 
argument  say  96.  It  does  not  make  any  diff<M«Dce. 

Mr.  White.  Yes. 

Mr.  Morse.  Suppose  you  were  getting  say,  for  the  sake  of  the 
argument,  96  for  these  bonds.  Then  there  is  a  difference  there  of 
some  4  per  cent  between  that  and  par.  Do  you  propose  to  charge 
that  4  per  cent  to  operation,  operating  expenses? 

Mr.  HE]\fPHiLL.  I  think  the  proper  method  in  that  case  would  be 
to  amortize  it. 

Mr.  White.  You  see  this  bond  issue  is  sold  on  the  basis  of  a  7  per 
cent  return  on  par  for  the  preferred  stock.  It  is  a  convertible  bond 
in  7  per  cent  preferred  sto^  Whatever  you  have  to  sell  it  for  you 
have  to  sell  it  on  Utat  ba^;  whatever  the  bank  figures.  It  is  on  the 
basis  of  five-year  notes. 

Mr.  Mouse.  In  that  case  let  me  ask  you  a  question  there.  This  4 
per  cent  you  would  amortise  that,  and  I  presume  you  would  take  a 
tsertain  p<Mrti<«  of  it  up  in  o]]prating  exp^ise,  say,  periodically, 
yearly,  or  some  way. 

Mr.  White.  That  would  be  the  fair  way  to  do  it. 

Mr.  Morse.  You  would  take  that  up  in  operating  expense? 

Mr.  White.  That  would  be  the  fair  way  to  do  it. 

Mr.  Morse.  And  that  would  be  charged  to  cost  of  goods  sold. 

Mr.  White.  Yes.  We  have  to  pay  that  much  to  get  this  money. 
It  is  just  like  we  have  to  pay  a  little  bit  more  to  get  a  certain  box  to 
ship  pork  loins.   It  is  a  condition  of  the  money  market. 

Mr.  MoRSE.  In  other  words,  you  pay  for  that  money.  These  bonds 
net  you  96,  and  you  have  got  to  pay  something  to  the  holders  of  this 
security  That  money  costs  you  4  per  cent. 

Mr.  w  HRx.  Yes. 

Mr.  McMttos.  But  in  the  meantime  that  money  costs  you  the  6  per 

Mr.  White.  But  we  would  have  to  cover  that  4  points  over  the 
period  of  the  bonds.  We  would  not  try  to  do  that  in  one  swipe. 

Mr.  MoRSB.  I  understand.  You  take  a  oartam  amount  of  that 
periodicaliy  and  yon  charge  it  off. 


84     MAZnCUM  PROFIT  UMTCAXION       UEkT-TAQKfXQ  UilH/fXimY. 

Mr.  Wbhs.  Amortise  it  •    a  ^ 

Mr.  MoRSB.  And  you  charge  to  that  your  ooat  of  prodnctiOBi 
Mr.  Whttb.  Yes. 

Mr.  MoBO.  I  believe  there  is  a  provision  in  these  bonds  that  thejr 
can  his  wmvwrted  into  7  per  cent  preferred  stock.  According  to  this 
regulation  I  read,  "All  interest  paid  on  bonds,  bills,  accounts  payable 
above  Uie  rate  of  5  per  cent  can  be  charged  to  operating  expense," 
hence  would  you  expect  to  charge  2  per  cent,  or  the  difference  be- 
tween 6  per  cent  and  7  per  cent,  the  latter  amount  being  the  interest 
on  the  preferred  stock,  to  cost  of  production  or  to  production?  ^ 

Mr.  Hemphill.  I  do  not  think  that  applies. 

Mr.  White.  I  do  not  think  that  would  apply  

Mr.  Chase.  You  would  have  to  get  a  special  ruling  on  that. 

Mr.  Morse.  I  wanted  to  get  his  idea  as  to  it,  that  is  all. 

Mr.  Chase.  I  see.  ^  ^ 

Mr.  Morse.  What  is  your  idea  of  that,  Mr.  White? 

Mr.  WnrrE.  I  have  not  given  the  matter  any  thought,  but  it  seems 
to  me  it  is  creating  scmiething  different  when  you  create  a  preferred 

stock.  ( /h 

Mr.  MoBSB.  It  depends,  in  my  mmA,  on  the  nature  of  the  security.  ^ 
If  it  is  a  straifffat  out  aiid  out  preferred  stock,  I  do  not  think  this 


II 

l»Us  payable.  ^ 
Mr.  Chasb.  Absolutely. 

Mr.  White.  So  it  would  have  to  be  treated  ]ust  as  borrowed 
money,  but  on  the  conversion  of  it  I  think  we  would  have  to  ask  for 
a  new  ruling  on  the  questioli. 

Mr.  Morse.  You  think  you  would? 

Mr.  White.  I  would  say  so. 

Mr.  Morse.  You  see  at  the  present  time,  as  far  as  we  are  con- 
cerned, we  are  entirely  unfamiliar  with  what  the  provisions  of  what 
this  proposed  preferred  stock  are. 

Mr.  White.  That  only  happened  yesterday.  You  would  not  be 
familiar  with  it.  I  myself  am  not  entirely  familiar  with  it,  and 
can  not  discuss  it  intelligently  withTou. 

Mr.  Morse.  What  have  you  paid  on  the  average  for  borrowed 
money  during  1918,  or  I  should  say  from  November  1,  1917,  to 
date!   What  is  the  average  vou  paid  for  borrowed  money! 

Mr.  Hemphi&l.  I  will  get  that  for  you. 

Mr.  Wfiom  Just  leave  that  answer  qp^..  We  will  give  you  the 
actual  figures,  because  we  figure  it  every  period  in  dosing. 
Mr.  Mouse.  You  think  it  is  d  per  cent? 
Mr.  Hemfhill.  It  won't  miss  it  very  far. 
Mr.  WnrrE.  It  is  over,  I  should  sav. 
Mr.  Morse.  You  think  it  is  over  6? 
Mr.  Hemphill.  Possibly  our  bonds  keep  it  down  to.  6. 
Mr.  Tator.  The  bonds  are  4J  now. 

Mr.  White.  There  are  50,000,000  ^  per  cent  bonds  out,  you  know, 
and  that  would  keep  the  rate  down. 

Mr.  Tator.  Did  you  see  this  morning's  paper?  You  people  are 
credited  with  going  to  issue  300,000,000  of  common  and  preferred 
stock. 


Mr.  Whttb.  lliat  is  good  endit,  is  it  not! 

Mr.  Tatcmi.  Yes;  I  was  just  wcmdenng  if  M^.  Morse  had  seen 
that — ^three  hundred  millions. 

Mr.  Whtte.  That  would  be  some  money,  wouldn't  it! 

Mr.  Morse.  Have  you  got  that,  Mr.  Hemphill? 

Mr.  Hemphilij.  I  have  not  that  figured  now.  It  is  throwing  three 
periods  together,  you  understand. 

Mr.  Morse.  For  the  s^ke  of  argument,  we  will  assume  that  you 
have  paid  an  average  of  6^  per  cent.  Do  you  think  that  that  would 
bo  far  out? 

Mr.  Hemphill.  A  little  high. 

Mr.  Morse.  We  can,  of  course,  correct  that  after.  Under  this 
provision  which  I  have  just  read  you  believe  that  you  are  entitled 
to  li  per  cent  charge  against  operating? 

Mr.  Whito.  Undoubtedly. 

Mr.  Morse.  Then  you  have  so  taken  it! 

Mr.  Whteb.  We  have. 

Mr.  Hemphill.  Yes. 

Mr.  Mourn.  I  beg  your  pardon,  Mr.  White,  for  asUng  Ms  ques- 
tion. I  was  a  little  curious.  Mr.  Tator  has  put  iMs  in  ihy  mind.  Is 
there  anythmg  in  this  newspaper  story  he  spoke  of  about  the  in- 
crease in  capital  in  issuing  that — — 

Mr.  Tator.  It  is  in  your  Trihune  that  you  have  there.  I  presume 
you  have  it  there. 

Mr.  Whttb  [getting  {Miperl.  Mr.  Armour  for  a  long  time  has 
been  figuring  on  capitalizing  his  business,  on  doing  something  with 
it  other  than  under  the  present  plan,  which  is  simply  $100,000,000 
worth  of  common  stock,  and  of  which  he  owns  individually  about  80 
per  cent.  This  newspaper  story  is  that  probably  somebody  has  come 
around  and  talked — I  do  not  think  there  is  any  definite  plan. 

Mr.  Morse.  A  reorganization  has  been  discussed,  then? 

Mr.  White.  We  have  discussed  it  for  10  years  in  this  business.  It 
comes  up  periodically. 

Mr.  Morse.  How  much  common  stock  do  you  propose  to  issue 
under  your  new  plan? 

Mr.  White.  We  have  not  discussed  that.  - 

Mr.  Morse.  It  is  not  decided? 

Mr.  White.  It  is  not  decsided. 

Mr.  MoBSB.  Have  you  got  a  preferred  plan  there,  too! 
Mr.  WHifB.  1Mb  new  ^0,000,000  bond  issue,  conv^Ue  bonds  into 
7  per  cent  preferred^  is  as  far  as  the  matter  has  gone. 
Mr.  Morse.  That  is  as  far  as  the  matter  has  gom  definitely ! 

Mr.  White.  So  far;  yes. 

Mr.  Morse.  Has  the  matter  of  the  common  stock  gone  tiiat  ^! 
Mr.  Whttb.  It  has  not  been  discussed  at  all. 
Mr.  Morse.  It  has  not  been  discussed  at  all! 
Mr.  White.  Ko. 

Mr.  Morse.  Is  it  your  wish  that  this  Ixmd  issue  be  taken  up  gm- 
erally  by  the  public? 

Mr.  White.  The  entire  issue  has  been  sold  to  banks  to  be  resold  to 
the  public. 

Mr.  MoitsE.  It  has  been  sold  to  banks  to  be  resold  to  the  public? 
Mr.  White.  Yes. 


86     MAXIMUM  PBOVIX  UMIXAXXON  ON  lCSA3>PAOKING  INDUSXEY. 

Mr.  MoBSE.  Is  Mr.  Armour  a  subscriber  to  any  extent  to  those 

bonds? 

Mr.  White.  None  whatever. 

Mr.  Morse.  He  has  not  subscribed  to  any  extent  to  those  bonds! 
Mr.  White.  None  of  the  family  have. 
Mr.  Morse.  None  of  the  family  have  or  financial  friends? 
Idbr*  Whus.  No. 

Mr.  Mmm.  He  is  not  oontemi^ing  at  the  present  time  hsTing 
any  intttrest  in  those  hondsff 
Mr.  WHna.  It  k  ovtirely  sold  to  the  banks  for  disinbation  to  the 

public. 

Mr.  Morse.  And  it  is  your  hope  that  these  bonds  will  be  eTenta- 

ally  converted  into  preferred  stock  ? 
Mr.  White.  We  nave  no  doubt  that  will  be  done  as  soon  as  that 

conversion  can  take  place. 

Mr.  Morse.  And  in  course  of  time,  if  you  issue  common  stock,  I 
presume  you  have  not  yet  decided  what  the  consideration  of  that 
would  be,  have  you? 

Mr.  White.  There  is  no  plan  at  all  about  the  common  stock  at  all. 

Mr.  Morse.  You  do  not  know  whether  you  would  sell  it  for  cash 
or  give  it  out  in  the  way  of  dividends  ? 

Mr.  White.  I  have  not  the  slightest  idea. 

Mr.  Morse.  Or  what  you  would  do  with  it? 

Mr.  Whttb.  No. 

Mr.  MoBsi.  Then,  as  I  take  it,  there  is  not  much  in  that  newspaper 
mrtidel 

Mr.  Warn.  The  an)?  thing  in  it  is  the  fact  we  ha^e  sold  sixtj 
nilions  dibentnres  that  are  coiiTertiUe  mto  prclenrad  sto^  ttt  T  pw 
cent. 

Mr.  Morse.  Does  that  cover  the  article,  Mr.  Tator? 

Mr.  Tator.  The  article  states  the  bonds  will  probably  net  about 
96,  and  that  sixty  millions  will  be  reauired  to  be  converted  into  sixtj 
millions  preferred,  with  part  of  the  nundred  million  preferred  ulti- 
mately to  be  issued. 

Mr.  White.  The  fact  that  Mr.  Armour  has  decided  to  issue  sixty 
millions  of  stock  to-day  does  not  estop  him  from  issuing  more  as  the 
requirements  coine  on.  The  purpose  of  this  was  to  get  some  new 
money  in  the  business,  and  we  had  to  do  something  to  protect  our- 
selves. 

Mr.  Morse.  Of  course,  you  can  go  as  far  as  you  please.   That  is 
your  own  funeral,  as  the  saying  is. 

Mr.  White.  But  I  am  sure  if  you  had  made  a  study  of  the  require- 
n^ts  of  this  business  for  the  last  year  in  comparison  with  what  it 
was  in  1916  or  1917,  in  the  way  of  money,  you  would  see  the  necessity 
fdr  such  a  move  as  was  made  here. 

Ifo.  MoHB.  I  know  some&ing  about  the  packing  business  in  regard 
to  that|  fm  the  reason  that  I  ha^e  auditecf— I  say  I  have  audited — 
wamBi      firm  has  audited  a  great  many  bank  aooounts  where  we 
found  packers'  paper.   I  remember  some  concerns  that  made  a  spe- 
mlty  of  handling  paofaeEs'  papery  m  I  know  ym  do  put  oat  a  lot  of 

paper. 

Mr.  White.  Oh,  my !  Our  increases  here  at  times — there  are  cer-  ' 
tain  times  of  the  year  when  we  will  increase  at  the  rate  of  A  niUion 
or  a  million  and  a  half  per  day  over  weeks  at  a  time. 


MAXIMUM  PAOS'IT  I^UilXAXION  ON  MBAX-FAGKING  IKDUSXR7.  87 


Mr.  Morse.  Your  business  has  practically  doubled,  hasn't  it,  in  the 
last  three  or  four  years? 
Mr.  White.  In  dollars? 
Mr.  Morse.  In  dollars. 
Mr.  Wnrra.  Yes. 

Mr.  MoBSB.  And  you  have  had  to  build  additional  plants  and  in- 
stall additional  machinery  f 

Mr.  Wmm  In  every  packing  house  we  own  we  have  had  to  build, 
and  we  would  to-day  be  hnilding  if  building  material  and  hibor  were 
'  available  at  reaacmabla  coat;  we  would  be  building  much  more  than 
we  are  at  present. 

Mr.  Morse.  And  on  account  of  your-^ — 

Mr.  White.  The  business  is  so  wearing  on  property,  the  changing 
temperature  and  the  grease  and  the  steam  ana  cold  air  and  all  those 
things  are  deteriorating  to  your  property.  The  packing  business 
needs  money  all  the  time  to  keep  it  up.  And  then  the  Agricultural 
Department's  ideas  of  a  sanitary  plant,  the  development  of  minds 
continually,  are  more  and  more  strict.  We  can  not  kill  cattle  in 
places  to-day  that  10  years  ago  were  considered  to  be  ideal.  We  can 
not  process  meat  in  buildings  to-day  that  five  years  ago  we  could. 

Mr.  Morse.  I  appreciate  that. 

Mr.  White.  To  show  you  the  difference,  Mr.  Morse,  I  have  in  mind 
now  the  instance  where  we  had  a  fire  a  few  years  ago  in  what  we 
called  our  No.  2  beef  house.  Na  2  beef  house  was  buut  probably  20 
years  ago  of  mill  construction,  which  was  th^  considered  the  thing 
for  a  packing  plant,  and  it  was  carried  on  our  books  around  $250,000. 
A  fire  came  along  one  nig^t  and  wiped  it  out,  and  we  started  in  to 
rebuild,  and  when  we  got  a  building  to  replace  that  an  investment 
stood  on  our  books  of  slightly  over  fl,000,000.  We  were  doing  just 
the  same  business  in  the  old  place,  but  you  can  see  how  our  overiiead 
increased  on  that  investment^  to  do  the  same  business. 

We  had  to  rebuild  our  oleo  and  butterine  departments  here  this 
last  year^  and  before  we  got  through  our  investment  in  that  d^>art- 
ment,  building  the  plant,  was  over  $750,000,  with  marble  and  enamel, 
and  white  tiled  rooms,  in  which  the  butterine  is  handled,  everything 
up  to  the  last  word  in  sanitation,  etc.,  but  the  increased  overhead  on 
that  investment  is  something  to  be  considered. 

Mr.  Morse.  On  account  of  your  having  to  enlarge  your  plant  and 
doing  business  under  difficulties  on  account  of  the  sudden  large  in- 
crease in  volume,  I  presume  your  plant  is  not  as  efficient  as  it  would 
be  under  ordinary  circumstances  and  your  expenses  have  been  more  ? 

Mr.  White.  Tremendously  more  in  every  way.  And  then  on  top 
of  that  the  great  increase  in  the  labor  cost. 

Mr.  MoBSE.  I  presume  that  the  plant  as  a  whole,  the  units,  have 
been  disturbed,  so  when  you  transfer  from  one  department  to 
another  you  can  not  do  it  conveniently.  I  might  mention  a  little  ex- 
perience of  mine  that  wiU  illustrate  this  thing. 

I  went  into  a  shipbuilding  plant  one  time  and  the  superintendent 
opened  the  door  of  the  office  and  I  went  out  in  the  shop,  and  as  I 
went  out  there  somebody  hcdlered  look  out,**  and  everybody  ducked, 
and  I  loc^Eed  up  and  there  was  a  great  big  crane  moving  a  great  piece 
of  iron,  tons  of  steel,  and  that  crane  picked  it  up  very  carefully  lm>m 
a  T"^™  in  this  end  of  the  shopi  traveled  over  to  the  other  end  of 


88     MAZUCUIC  PBOVIT  LIMITAXIOH  ON  UMAMAOKSiiQ  iMW^MM. 


the  shop  and  deposited  that  stuff  down  on  the  other  side  of  the  shop, 
at  some  other  machine.  I  stood  there  and  watched  it,  and  most  every 
workman  in  the  shop  did  the  same  thing,  watched  this  load  of  iron 
go  across  on  this  crane.  I  said  to  the  superintendent, "  That  is  mighty 
inefficient.  Those  two  niacliines  should  be  placed  close  together,  so 
that  that  crane  could  pick  up  the  iron  from  one  machine  and  just 
move  a  short  distance,  and  every  one  would  not  stop  work  and  watch 
this  piece  of  iron  going  through  the  air."  He  said,  "  That  is  true, 
but  the  trouble  is  we  had  to  install  the  other  machine  at  the  other 
end  ef  the  shop  before  this  machine  was  installed,  and  we  are  going 
to  move  it  when  we  can." 

That  is  what  I  mean  in  regard  to  the  placing  of  your  units,  on  ac- 
count of  this  large  increase  in  business  in  the  last  four  years,  and 
your  having  to  enlarge  your  plant^  building  a  little  additi<m  here  and 
something  over  there;  your  plant  is  not  a  complete  worldng  unit,  and 
your  expenses  are  increased,  is  not  that  true? 

Mr.  White.  That  is  it  exactly.  We  have  undertaken  to  do  our 
business  under  the  guidance—^  live  under  the  Food  Administration's 
policy. 

Mr.  Morse.  They  wanted  increased  production? 

Mr.  White.  They  asked  for  increased  production  and  we  have 
tried  to  meet  it,  with  the  result  we  have  taken  in  this  live  product 
into  the  plant  and  have  had  to  rehandle  it,  store  it,  take  it  out  and 
ship  it,  and  run  it  from  one  end  of  the  stockyards  to  the  other  in 
order  to  get  storage,  bring  it  in  from  Sioux  City,  where  we  have  not 
got  the  big  storehouses  to  take  care  of  the  kill  there,  and  handle  it 
m  one  house.  Every  two  or  three  months  some  question  would 
come  up  about  a  part  of  that  product,  and  we  would  have  to  get  it 
out  and  overhaul  it  and  get  it  shipped.  The  restrictions  of  the  move- 
ment of  the  business  in  natural  cnannels  has  increased  our  expense 
tremendously.  At  the  reauest  of  the  Food  Administraticm  we  have 
continued  to  pile  up  product  and  hold  it,  waiting  for  tremendous 
orders,  which  they  expect.  Everything  has  increased  the  strain  on 
the  business,  increased  the  wear  and  tear  on  the  property,  and  in- 
creased the  cost  of  handling  the  product. 

Mr.  Morse.  This  all  reminds  me  of  something,  Mr.  White.  I  do 
not  know  as  the  time  is  ripe  to  put  the  scheme  I  am  now  about  to 
propose  to  you  into  operation,  but  I  think  it  might  be  a  good  one 
under  ordinary  circumstances,  and  that  is  this:  That  you  packers 
get  together,  all  of  you,  and  move,  say,  25,  30,  40  miles  out  of  Chi- 
cago, and  erect  a  packers'  city,  where  you  can  have  model  and  effi- 
cient plants,  have  a  homing  or  housing  plant  for  your  workmen.  I 
think  if  you  had  that  you  would  be  able  to  erect  plants  to  take  care 
of  your  business  and  have  the  units  all  conveniently  arranged,  and 
you  would  decrease  your  operating  expenses  and  work  more  efficiently 
and  your  labor  be  better  contented,  and  all  of  that  I  want  to  ask 
you,  has  that  ever  been  considered? 

Mr.  White.  No;  because  it  is  sort  of  fantastic. 

Mr.  Morse.  Tou  think  it  is?  Other  concerns  have  not  found  it 
so:  or  other  industries,  I  should  say. 

Mr.  White.  But  here  is  a  tremendous  investment  in  Chicago  Pack- 
ingtown. 

Mr.  McMun.  That,  of  ooniB^  is  ail  obstacle. 


Maximum  pbofxt  x^uoxaxiov  ov  MB^T-PAOKnara  nmxmtT.  89 

Mr.  White.  Which  you  would  have  to  find  some  way  of  wiping  off 
the  slate.  If  you  take  the  net  investment  here  and  set  it  up  against 
a  town  site  40  miles  from  here  it  would  take  about  100  years  to  eat 
it  up. 

Mr.  Hemphill.  There  is  a  half  a  billion  dollars  invested  in  the 
yards,  I  should  say. 

Mr.  Morse.  But  the  point  is  that  you  people  at  the  present  time  are 
using  in  your  business  wastefully  more  capital  than  possibly  you 
should  use — I  am  speaking  now  from  an  economic  standpoint— for 
instance,  your  land  here  that  you  are  operating  on  is  very  valuable. 
Cheaper  land  could  be  had  farther  out. 

Mr.  Wsim  We  have  tried  to  meet  that  situation  by  the  develop- 
ment of  these  outside  packing  houses,  by  going  to  Omaha,  going  to 
Denver,  going  to  St.  Joe  and  Kansas  City. 

Mr.  Morse.  I  presume  the  time  is  coming  when  you  will  have  to 

get  out  of  Chicago.  I  would  not  say  so  right  now.  In  fact,  I  would 
e  against  that  right  now.    I  presume  Sie  city  of  Chicago  itself 
mi^rht  want  you  to  get  out  some  time? 

Mr.  White.  We  are  the  biggest  thing  here  now.  We  are  the  big- 
gest taxpayers  and  the  biggest  subscribers  to  all  their  public  and 
civic  affairs,  and  we  have  got,  I  suppose,  100,000  people  depend^t 
upon  this  industry.  That  means  a  great  deal  to  the  city. 

Mr.  Morse.  Oh,  yes.  I  had  an  interesting  conversation  a  little 
while  ago  with  Mr.  W.  E.  Clark,  in  which  he  told  me  about  the 
town  of  Clarksville,  Ariz.,  in  which  are  the  houses  of  the  United 
Verde  Copper  Co.  industry.  It  was  very  interesting. 

Mr.  White.  Of  course,  he  started  new  there.  He  opened  up  the 
development.  It  was  easy.  Now,  we  started  new  at  Fort  Worth. 
That  IS  the  last^  plant  we  built.  If  your  work  takes  you  there  you 
wilt  find  two  nice,  large,  modem  plants,  one  owned  by  Swift  and 
<«e  by  Armour.  You  will  find  a  central  office  out  in  the  plant  by 
itself.  We  have  a  little  park  around  it,  and  rooms  to  take  care  of 
the  employees  and  all  that  sort  of  thing. 

Mr.  Morse.  You  did  not  try  to  house  your  workmen? 
Mr.  White.  No.  There  is  a  town  there.  North  Fort  Worth.  There 
was  no  point  in  doing  it.  A  new  town,  and  the  places  for  the  work- 
men were  brand  new  anyway.  It  is  a  mile  and  a  half  from  the  city. 

Mr.  Morse.  Now,  Mr.  Whipple,  you  have  been  listening  to  tie  con- 
versation. Have  you  any  questions  you  want  to  ask? 

Mr.  Whipple.  I  think  you  have  covered  pretty  near  everything. 
Mr.  White.  I  hope,  Mr.  Morse,  that  my  conversation  with  you 
this  morning,  m  an  analysis  of  this  business,  has  left  in  your  nund 
at  least  some  doubt  about  the  highly  speculative  feature  of  it. 

Mr.  Morse.  That  is  one  thing  I  have  forgotten.    I  supposed  Mr. 
Whipple  would  have  gone  into  it.  I  would  like  to  bring  that  out. 

Mr.  White,  do  you  think  the  packers'  business,  as  a  whole,  is  a 
hazardous  business  f 

Mr.  Wwam  I  think  it  is  one  of  the  most  hazardous  businesses  in 

existence. 

Mr.  Morse.  Why? 

Mr.  White.  Because  of  the  product,  the  nature  of  the  product;  it 
must  be  sold  in  a  fresh  condition.  For  instance,  this  last  two  or  three 
weeks,  or  the  last  three  months,  we  have  been  getting  into  a  i^tnation 


90     MAHKITM  PBOnX  ZJICITATION  OK  MSAT-PAOKIHQ  INDUSTBY. 

hm  on  our  eastern  bturines^  as  the  result  of  rsilroad  congestion,  the 

railroad  moving  the  cars  

Mr.  MoBsi.  But  that  is  unusual,  Ifr.  White* 

Mr.  White.  We  always  have  it 
Mr.  MoRSB.  That  is  unusual  on  account  of  the  time. 
Mr.  White.  But  we  always  have  it  in  peace  times  hy  reason  of 
weather  conditions  or  storms,  and  things  of  that  kind,  our  cars  are 

delayed,  but  since  this  congestion  of  ^ight  on  the  eastern  sea- 
board we  have  had  more  trouble  getting  our  product  to  market  in  a 
fit  condition  than  we  ever  had  in  the  hottest  weather  in  the  past. 
That  IS,  we  have  our  main  trouble  in  July  and  August,  in  hot 
weather.  Our  cars  are  supposed  to  get  icing  every  24  hours,  and  wo 
have  had  cars  out  here  in  the  last  two  or  three  months  that  arrived 
at  destmation  anywhere  from  one  day  to  seven  days  late,  and  fre- 
quently without  a  bit  of  ice  in  the  bunkers,  and  naturally  the  condi- 
tion of  the  meat  in  tliem  was  anything  except  with  the  bloom  on  it, 
as  we  say.  We  had  to  force  a  sale  of  it. 
Mr.  Morse.  Entirely  spoiled? 

Mr.  Wmm  No;  it  was  fit  for  food.  We  could  not  sell  it  other- 
wise. But  take  a  car  of  beef  that  leaves  Chicago  to-night.  This  is 
Wednesday  night  It  should  be  m  the  coolers,  unloaded  in  New 
Yoi*  on  Monday  morning.  If  it  does  not  get  there  until  Wednesdav 
w  Thursday,  it  will  come  out  of  the  car  a  little  bit  sticky  or  a  little 
mouldy  or  a  little  dark  around  the  edges,  and  then  immediately  the 
buyers  commence  to  discount  that  with  the  salesman.  We  have  got 
to  sell  that  at  the  best  price  we  can  get  and  take  our  chances*  We 
have  had  car  after  car  which  in  the  past  three  months  have  shown 
losses  of  from  a  cent  to  5  or  6  cents  a  pound  in  value.  Our  ayeraffo 
margin  in  our  total  fresh  meat  turnover  is  about  three-fourths  of  a 
cent  a  pound,  so  when  we  get  that  it  multiplies  pretty  fast  against 
the  volume. 

Mr.  Morse.  Speaking  from  an  economic  standpoint,  I  would  aay 
those  are  simply  ordinary  occurrences  in  your  business  that  you  are 
familiar  with  and  liable  to  occur  any  time,  and  which  as  long  as  you 
are  in  this  business  you  have  got  to  guard  against.  As  an  accountant 
I  would  not  call  that  a  particular  hazard.  A  hazard,  as  we  under- 
stand it,  is  something  that  is  not  liable  to  occur.  Mr.  Whipple 
suggests  an  act  of  God.  I  do  not  like  to  say  that.  Suppose  you  had 
&  big  fire  or  had  a  flood  or  something  of  that  kind,  struck  by  li^t- 
ning. 

1&.  Wmm  We  have  had  all  those  things. 

Mr.  MoBflB.  Suppose  your  plant  is  blown  up,  something  of  that 
kind. 

Mr.  Whxtb.  I  do  not  call  that  speculative  in  the  sense  that  we  are 

discussing. 
Mr.  MoBSE.  We  agree  on  that  then. 

Mr.  Whttb.  Yes.  This  is  what  I  say  about  this  business.  We  ffo 
through  a  season.  Here  is  a  tekigram.  Excuse  me  while  I  rmd  it. 

Mr.  Morse.  Certainly. 

Mr.  White.  I  do  not  regard  that  at  all  in  the  nature  pi  speculation, 

the  acts  of  God.  That  is  the  hazzard  of  any  ^iffinffle,  Bat  we  go 
on  

Mr.  Mobse.  Those  are  things  you  are  not  liable  to  have,  and  things 
that  have  not  occurred  to  the  packing  industry,  to  your  hufrincMW  in 
recent  years,  is  tUat  lightl 


Mr.  White.  Oh,  we  have  had  our  floods  and  had  fires  and  all  that 
sort  of  thing. 
Mr.  Morse.  When  did  you  have  a  flood  ? 

Mr.  White.  The  last  Kansas  City  flood  we  lost  millions  of  pounds 
of  meat  in  that. 
Mr.  Morse.  When  was  that? 
Mr.  White.  About  10  years  ago.  Isn't  that  right? 
Mr.  HiBMFfmji.  I  think  so. 

Mr.  Whttb.  About  a  million  dollars  we  lost  down  there. 
Mr.  MoBSB.  Ton  lost  that  down  there! 
Mr.  Wmm  Yes. 

Mr.  MoBOU  Have  you  had  any  floods  since  then? 

Mt.  Whus.  No;  but  we  get  hi^  water  at  Kansas  City  every 
year,  utd  we  always  have  to  guard  agaim^  it.  That  was  one  of  the 
years  it  got  away  from  us.  Everybody  was  damaged. 

Mr.  MoBSB.  But  you  do  not  have  any  losses  year  by  year  by  flood? 

Mr.  Whttb.  No. 

Mr.  Morse.  And  you  have  had  no  disastrous  fires  that  have  not 
been  covered  by  insurance? 

Mr.  White.  No  ;  we  aim  to  cover  our  houses  by  insurance. 

Mr.  Morse.  Do  you  place  your  insurance  with  line  companies,  or 
handle  it  yourself  ? 

Mr.  White.  Yes;  we  place  it  with  the  line  companies.  Here  is 
what  I  refer  to.  We  are  carrying  an  inventory  to-day  of  approxi- 
mately 250,000,000  pounds  of  products.  We  are  in  a  war  condition. 
The  war  could  cease  to-morrow,  or  within  a  few  days,  or  months. 
We  are  on  the  highest  prices  ever  known  of  in  history  for  our 
product.  Now,  a  2,  3,  4,  or  5  cent  break  from  the  pinnacle  of  values 
that  we  are  on  to-day  would  just  tear  our  profit-and-loss  sheet  into 
ribbons.  That  is  what  I  mean  by  highly  speculative  thing.  It  is 
so  sensitive  to  a  condition.  We  could  have  a  money  panic  oome  on 
here  and  values  shiink  to  nothing.  But  our  product  is  liquid. 
Tluit  is  why  the  banks  lilie  us  so  welL  We  can  always  get  a  sale 
at  some  price. 

Mr.  M!ob8b.  Ton  do  not  have  any  trouble  in  bOTrowing  money? 

Mr.  Whtte.  No.  We  aim  not  to  have  trouble. 

Mt.  MoBSB.  I  mean  your  credit  is  such  that  you  can  get  any  amount 

of  money  any  ^le  you  want,  to  operate  with? 

Mr.  Whttb.  ;  but  the  business  is  so  sensitive,  fresh-meat  prod- 
ucts such  as  ours  is,  that  it  is  just  speculative  itself.  For  instance, 
our  total  volume  of  sales  in  the  United  States  for  the  six  months 
ending  April  27, 1918,  amounted  to  $321,000,000.  That  is  an  increase 
of  $94,000,000,  or  41  per  cent,  over  the  same  period  last  year.  We 
sold  the  governments  of  that,  including  the  Allies  and  the  Belgian 
Relief,  $107,000,000  worth  of  products.  We  have  to  be  prepared  to 
take  that.  Suppose  a  break  would  come ;  suppose  the  Food  Adminis- 
tration and  limitation  would  go  out  of  business.  Under  the  Food 
Administration  hogs  are  supposed  to  be  pegged  at  15J  cents.  The 
normal  price  for  hogs  would  be  about  6J  cents.  Now,  if  this  war 
ceases  and  the  Food  Administration  goes  out  of  business,  and  the 
farmer,  too,  sees  that  he  is  not  going  to  get  15^  cents  for  hogs,  and 
they  come  in  here  like  rain  by  the  hundred  thousand^  what  wQl  hap- 
]^  to      product  we  own  t  Thi^  is  i^teculative.  liiat  conditloii,  I 


am  only  magnifying  it  as  of  date.  But  wider  just  ordinarv  condi- 
tions in  the  business  we  carry  from  one  hundrect  to  one  hundml 

and  fifty  million  pounds  of  products  from  one  season  into  another 

season.    Last  winter,  through  January  and  February  and  March, 

through  the  great  run  of  hogs,  we  could  not  put  them  out  into  pickle 

and  salt,  we  had  to  do  something  with  them  to  provide  for  the  time 

when  there  wouldn't  be  any  hogs.  So  we  cut  pork  loins  and  ]3ut  them 

m  the  freezers  as  fresh  pork  loins,  until  the  period  of  July  and 

August,  and  then  will  sell  them  as  pork  loins. 

Mr.  Mouse.  But  you  do  not  think  those  conditions  will  happen  after 
the  war? 

Mr.  White.  The  speculative  condition  of  the  business  ? 
Mr.  McHiSB.  You  do  not  spriously  look  forward  to  any  slump.  I 
say  slump.    I  mean  such  a  dropping  of  prices,  do  you,  on  food 

products? 

Mr.  Wmi'i^-  I  think  every  industry  in  this  cou]itr3F<— exbeoftinff 

none — will  feel  a  depression  after  the  war. 

Mr.  Morris.  Not  immediately  after  the  war.    You  do  not  nMan 

that,  do  you? 

Mr.  White.  I  mean  tlie  day  peace  is  started  to  be  negotiated. 

Mr.  Morse.  My  opinion  is  that  you  are  going  to  be  disappointed 
on  that,  because  experience  has  proven  after  a  war  the  inflation 
usually  keeps  up  for  awhile  and  the  severe  strain  is  felt  maybe  two  or 
three  years,  and  it  has  been  known  as  late  as  four  years  after  a  war 
is  over,  because  the  people  after  this  war  is  over  have  got  to  have 
food  just  the  same  as  they  have  it  now,  just  the  same  quantity 
They  have  all  got  to  be  fed  just  the  same.    And  there  is  a  lot  of 
rebuilding  and  reconstruction  and  all  that  to  be  clone,  and  you  are 
not  going  to  have  a  business  slump  immediately  after  the  war 
although  it  will  come— it  has  to  come  some  time.    Whatever  goes 
up  has  got  to  come  down,  no  doubt  about  that  . 
.  Mr.  Whitb.  Yes. 

Mr.  MoBSE.  But  you  will  find,  I  think,  that  it  will  be  two  or  three 
years  after  the  war  before  there  is  any  serious  business  d6pre6si<m 
occurring.  And  your  prices— that  is,  beef  prices— I  expect,  will 
keep  up  pretty  fair  for  a  considerable  period  i^r  the  war,  so  you 
have  not  got  a  hazard  there,  I  do  not  believe. 

Mr.  White.  Of  course,  that  is  jour  idea. 

Mr.  Morse.  I  am  only  offering  it  for  what  it  is  worth,  of  course. 

Mr.  White.  My  analysis  of  the  business  situation  to-day,  of  oup 
business,  is  that  it  is  on  inflated  values.  It  is  on  inflated  values  of 
raw  materials.  It  is  on  inflated  values  ot  UJaar  and  on  inflated 
values  of  finished  articles. 

Mr.  Morse.  No  doubt  about  that. 

Mr.  White.  The  thing  that  inflated  it  was  the  war,  and  the  cessa- 
tion of  war  ought  to  take  some  of  the  inflation  away. 

Mr.  Mouse.  It  will  come  in  time,  but  not  right  away  after  the  war 
is  over. 

Mr.  Whub.  Yes. 

Mr.  MoBSB.  It  comes  usually  by  a  readjustment,  and  a  readjust- 
ment is  always  gradual.  It  can  not  be  all  at  once. 

Mr.  WHim  I  woold  hate  to  see  it  aU  at  cmoe. 

Mr  Morse.  If  yoo  wooU  have  it  wU  at  onoe  you  would  have  an 
awful  panic  % 


SCAXIMUM  PEOFIT  LUdTAnOlT  OH  MEAT-PACKIHG  IKDUSTBT.  9S 

Mr.  Whttb.  We  had  a  panic  ait«r  the  Civil  War,  but  it  did  not 
come  till  six  years  after. 

Mr.  MoBSB.  There  you  are.   That  is  the  history  of  those  thingiB. 
It  always  comes  amsiderably  later  than  the  time  the  war  ceases. 
'  Mr.  White.  Yes.   But  here  is  the  situation  in  this  business,  the 

speculative  feature  of  it.   If  we  take  an  invwitory  to-day — we  never 
take  it  in  the  midweek — ^but  if  we  take  inventory  June  1  of  our 
business  and  close  our  books  we  would  show  a  loss  in  the  month  of 
\        May  of  over  a  million  and  a  half  dollars  in  inventory  values. 

Mr.  Morse.  Speaking  of  inventories,  Mr.  White,  you  inventory 
your  product  at  market? 

Mr.  White.  Yes. 

Mr.  Morse.  In  doing  that  you  always  either  take  a  profit  or  a  losst 
Mr.  White.  Yes. 
^  Mr.  Morse.  You  are  bound  to. 

Mr.  White.  Yes. 

Mr.  Morse.  One  way  or  the  other,  whatever  way  it  is. 
Mr.  White.  Yes. 

Mr,  Morse.  So  that  your  stated  profit  or  losses  are  always  con- 
)        trolled  absolutely  by  this  inventory;  is  not  that  right! 
Mr.  Wnms.  Yes. 

Mr.  MoBSE.  And  it  is  not  possible,  in  your  opinion,  to  takb  an 
inventi»y  at  cost  price  ? 
Mr.  Hemphill.  We  figure  a  few  of  the  e^ieoialty  departments  at 

^  cost. 

Mr.  Chase.  Is  not  beef  at  cost?  Dressed  beef  is  at  cost,  is  it  not? 
Mr.  Hemphill.  Dressed  beef ;  yes.   All  of  our  carcass. 
Mr.  Morse.  I  understand  from  what  Mr.  Hemphill  said,  some  of 
your  inventory  you  figure  at  cost,  as  near  as  you  can  figure  it,  and 
^        some  of  it  at  market? 

Mr.  White.  What  he  refers  to  that  he  figures  at  cost  is  the  manu- 
factured article  in  our  specialty  lines,  like  our  grape- juice  depart- 
ment, soda-fountain  department,  preserved  fruits  and  jellies,  which 
we  buy  from  the  producers  and  put  into  package  form.  There  would 
V  not  be  any  question  about  the  basis  of  that.  You  would  inventory 
^  that  at  cost  and  only  take  your  profit  when  you  dispose  of  it,  but  on 
our  meat  products,  the  general  line,  we  inventory  them  at  closing 
periods  and  the  then  market,  and  stand  or  fall  on  the  profit  or  loss 
as  of  that  date. 

,  Mr.  MoBSE.  So,  in  your  inventory,  that  portion  of  the  inventoiy 

/  that  is  figured  at  market,  you  do  not  get  your  profit  until  you  Imve 
actually  sold  your  goods  and  you  may  sell  those  goods  above  the 
profit  on  which  you  nave  computed  sucn  profit;  is  not  that  right! 

Mr.  White.  Yes.  If  we  inventoried  last  Tuesday  this  great  ware- 
house full  of  meat  at  the  market  our  departm^tal  sMexiSmU  would 
show  a  pr<^t  or  loss  on  the  basis  of  that  day. 
A         Mr.  MoBSB.  But  you  mi^^t  not  get  rid  of  that  stuff  for  months  to 
come? 

4  Mr.  White.  Three  or  four  months,  or  five  months.   And  then  in 

the  interim  between  the  time  when  we  inventoried  it  and  the  time  we 
sell  it  two  things  would  happen*  It  would  either  go  up  in  value  or 
go  down  in  value. 


V 


94    MAxntmc  profit  limitaxion  ojsi  msat-paokinq  indusi&t. 


Mr.  M0K8E.  Therefore,  do  you  think  that  these  rules  and  regula- 
tions of  the  Government  have  been  in  force  long  enough  to  give 
much  of  an  idea  as  to  their  workability  f 

Mr.  White.  I  do  not  think  so. 

Mr.  Morse.  Do  you  think  they  should  remain  in  force  

Mr.  White.  I  think  that  this  at  least  takes  a  ^ear — am  talking 
about  the  general  basis  I  think  before  you  amye  at  a  concluakm 
as  to  the  application  of  these  rules  that  you  must  stnd^  at  least  a 
year's  homneaB  of  the  packing  indu&rfxy.  I  do  not  think  it  is  Hit 
otherwise,  because  there  are  some  departments  that  do  not  realiae 
on  their  stuff  in  the  six  months  that  have  been  under  observation. 

Mr.  MossB.  Is  there  anything  you  want  to  ask  Mr.  White! 

Mr.  Chase.  I  would  like  to  put  one  queiBiion  in  there. 

Mr.  Morse.  All  riffht,  Mr.  Cnase.  • 

Mr.  Chase.  Would  you  faYor»  Mr.  White,  a  regulation  based  att 

sales  ? 

Mr.  White.  Eather  than  on  the  iuYestmentt 

Mr.  Chase.  Yes. 

Mr.  HEMriiiLL.  I  might  say  in  that  connection  that  the  Canadian 
regulation  is  2  per  cent  of  the  sales,  a  flat  regulation,  2  per  cent  of 
the  sales.  That  is  the  one  you  were  getting  at  this  morning. 

Mr.  Morse.  Yes. 

Mr.  White.  It  would  depend  on  the  amount  of  it.  I  do  not  think 
it  would  make  any  material  difference. 

Mr.  Mouse.  It  would  oTercome  some  of  these  difficulties  we  have 
been  talking  about,  wouldn't  itt 

Mr.  Whttb.  Yes,  sir;  entirely. 

Mr.  Chasb.  Simpler  to  aooonatf 

Mr.  Whot.  Yes.  * 

Mr.  Chase.  And  if  the  rate  was  satisfactory  

Mr.  White.  If  the  rate  was  satisfactory  it  would  be  all  right. 

Mr.  CHAsr.  You  would  not  seriously  object? 

Mr.  AVhite.  No.  In  fact,  that  is  the  method  I  suggested  to  the 
Hide  and  Leather  Control  Committee  for  regulating  the  leather  in- 
dustry. That  is  a  very  complicated  business. 

Mr.  Morse.  You  think  that  the  percentage  on  sales  would  work 
out  better  and  be  more  equitable;  do  you  have  that  opinion? 

Mr.  White.  Yes. 

Mr.  Morse.  It  would  do  away  with  a  lot  of  these  difficulties  we 
have  been  talking  over?  ^ 

Mr.  Whttb.  1^;  I  think  that  would  be  fair,  provided,  of  course, 
the  figure  was  a  reasonable  fi^re,  and  it  seems  to  me  that  on  a 

Eropositicm  that  it  is  sort  of  satisfying  to  the  general  public,  a  little 
etter.  F<Hr  instance,  if  you  would  say  to  the  public  tiiat  the  paclrers 
can  not  make  but  4  cents  on  a  dollar  and  very  little  tomoyer,  no 
matter  how  much  business  they  do — ^you  do  not  care  whether  it  is  it 
tlM>usand  million  a  year  or  ten  million  or  ten  hundred  million,  you  do 
not  wailt  a  business  that  is  not  economically  sound.  Now,  if  you  say 
to  the  public,  "  Don't  worry  about  the  volume  of  that  business,  we 
have  got  the  iron  hand  of  the  law  on  it,  because  they  can  only 
take  a  toll  from  the  citizens  of  4  cents  on  the  dollar  on  their  loins," 
then  it  is  all  right ;  you  have  got  a  situation  that  would  satisfy  them. 
But  I  do  not  think  it  would  be  fair,  in  answer  to  Mr.  Chasci  to  apply 


IfAXnCUM  FBOFIT  LIMITATION  ON  MB4T-PAOKING  IVDII8IST.  95 


a  figure  to  the  packing  business  oa  the  basis  of  the  meat  industry  to 
the  fertiliser  and  these  hi^y  specialized  industries  like  the  glue 
business.  For  instance,  in  some  of  the  departments  of  this  business 
we  do  not  turn  our  money  but  once  a  year.  In  the  glue  business  we 
turn  our  m<mey  once  a  year.  It  would  not  be  fair  to  the  glue  busi- 
ness to  say  you  are  gomg  to  limit  that  great  big  industry  with  a 
$6,000,000  investment  down  there  the  same  as  the  meat  industry  that 
turns  over  every  two  weeks. 

Mr.  Hemphill.  Your  remarks  apply  to  class  1 ! 

Mr.  Chase.  I  was  thinking  of  class  1  when  I  formed  the  question. 

Mr.  White.  The  answer  to  class  1  is  "  Yes,"  that  the  reasonable 
figure  should  be  as  equitable — and  I  think  Mr.  Cotton  had  that  in 
mind  when  he  put  a  limitation  on  turnover  as  well  as  on  the  money 
invested. 

Mr.  Hemphill.  You  undnrstaod  the  regulation  is  a  double-header. 
It  is  9  per  cent  of  the  investment  provided  it  does  not  exceed  d| 
per  cent  of  tiie  saJes. 

Mr.  MoBSE.  Mr.  Whipple,  have  you  an^rthing  else  to  ask! 

Mr.  Whxfflb.  I  think  you  have  covered  it. 

Mr.  MoBSB.  By  the  way,  at  this  point  I  would  like  to  have  Mr. 
Chase  take  up  with  Mr.  White  those  percentages,  your  percentages 
there,  showing  the  variation  between  the  classes  of  the  different 
packers  and  on  the  basis  that  you  figured  in  per  cent  Armour  &  Co. 

would  make  for  the  year. 
Mr.  Chase.  Get  his  comments  on  that? 
Mr.  Morse.  Yes.  ^  , 

Mr.  Chase.  Have  you  got  a  copy  of  that? 

Mr.  Morse.  You  have  not  yet  made  any  revision  there,  have  you, 
Mr.  Chase? 

Mr.  Chase.  No. 

Mr.  Morse.  It  is  fair  he  should  see  that. 

Mr.  Chase.  Yes,  the  other  people  Have  seen  it. 

Mr.  White,  do  you  think  that  these  figures  I  have  prepared  show- 
ing earnings  on  net  worth  on  the  basis  of  the  first  four  months  of 
packers'  returns  for  the  Food  Administration  are  a  reliable  index 
of  the  actual  year's  results? 

Mr.  Whtfe.  I  do  not  think  so. 

Mr.  Morse.  Why,  Mr.  White?   State  your  reasons. 

Mr.  White.  We  have  gone  through  a  period  there  of  increasing 
values  in  products,  which  would  show  cumulatively  in  an  inven- 
tory— ^these  figures  are  only  inventory  closings,  not  actual  sales.  It 
is  a  cumulative  period  on  the  product  and  at  the  end  of  this  period 
the  inventory  would  show  the  apex  of  the  year,  and  we  have  taken 
the  profits  as  of  the  inventory. 

Mr.  Morse.  You  have  taken  book  profits  but  not  actual  profits? 

Mr.  White.  That  is  it  exactly.  We  have  not  realized  on  the  mat- 
ter. We  have  simply  taken  a  paper  profit  as  shown  in  the  inventory, 
and  it  would  not  be  fair  to  assume  a  year's  results  by  four  months' 
profit  on  this  business. 

Mr.  Morse.  You  see  by  Mr.  Chase's  figures  that  23.64  per  cent  on 
this  basis  would  be  your  annual  profit,  based  upon  your  net  worth 
in  all  classes  of  business? 

Mr.  Whtcb.  You  did  not  have  the  right  page. 


96     MailMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY. 


Mr.  Chase.  That  is  your  allowed  profit! 
Mr.  Morse.  Yes. 

Mr.  White.  Your  earnings  would  be  19.73. 
Mr.  Morse.  That  should  be  19.73 ;  yes.   Change  that,  please. 
Mr.  Hemphill.  That  is  actual  earnings  you  are  looking  up  now? 
Mr.  Morse.  Yes.  Do  you  think  you  come  anywhere  near  that  or 
exceed  it? 

Mr.  White.  The  mdications  of  the  busineBS  at  the  moment  m 
that  we  will  not  come  anywhere  near  it. 
Mr.  M(»8b.  On  your  whole  buedneflBt 
Mr.  Wmn.  On  our  entire  business. 

Mr.  Chase.  If  you  had  this  allowed  profit,  has  th«re  been  any 
prior  year  that  has  been  any  bel^f  I  suppoee  yon  would  have  to 

look  that  up? 
Mr.  WnrrE.  I  could  not  answer  that. 
Mr.  Chase.  That  is  all,  thank  you. 

Mr.  Morse.  I  might  say  for  the  record  a  computation  has  been 
made  as  to  the  annual  rate  of  interest  for  26  weeks  on  borrowed 
money  by  Mr.  Hemphill,  and  the  same  is  found  to  be  5.489  per  cent. 

Mr.  White.  I  want  to  call  attention  to  the  wool  account.  Our 
statement  for  26  weeks  ending  April  27  shows  an  investment  in  the 
wool  account  of  slightly  over  $4,000,000,  which  is  more  money  than 
we  have  invested  in  our  sheep  account.  The  only  place  where  the 
sheep  department  is  interested  in  the  wool  is  in  the  transfer  price  of 
the  sheepskin,  and  our  method  is  to  transfer  that  at  the  full  market 
price  as  of  the  d^te  at  which  it  is  taken  off  the  sheep's  back.  The 
wool  department  buy  sheepskins  all  over  the  world,  sort  the  wool 
into  at  feast  40  different  grades,  sort  the  pickled  sheepskins  into  at 
least  20  different  grades,  and  thereafter  manufacture  the  dieepskins 
into  hi^y  specidized  lines  of  leather.  .  It  hardly  seems  consistent 
tiiat  this  wool  showing  should  he  considered  in  class  1. 

I  hope  I  have  made  a  little  impressipn  on  you  gentlemen  on  the 
question  of  the  eliminaticm  of  these  department,  l^t  is  alL  I 
think  that  is  the  big  thing  we  want. 

(Whmupon  at  12J20  p.  m.,  a  reoeas  was  taken  until  1«80  p.  m.) 

AFTBH  BECESS. 

Chicago,  III.,  June  12^  1918 — 1.30  p.  m. 

Present  on  behalf  of  the  Federal  Trade  Commission :  Stuart  Chase, 
Esq.,  Samuel  W.  Tator,  Esq.,  Perley  Morse  &  Co.,  certified  public 
accountants.  New  York,  represented  by  Perley  Morse  and  P.  S. 
Whipple. 

Present  on  behalf  of  Wilson  &  Co. :  G.  H.  Cowan,  Esq.,  vice  presi- 
dent; H.  B.  Goff,  Esq.,  general  accountant;  and  F.  H.  Knief,  £sq., 
chief  accountant.  , 

G.  H.  Cowan  was  called  as  a  witness,  and  being  examined,  testified 
as  follows: 

Mr.  MoBSE.  Mr.  Cowan,  you  are  familiar  with  the  United  States 
Food  Administration  meat  division  rules  and  regulations  that  have 
hem  in  etfeet  since  November  1, 1917  f 

Mr.  Cowan.  Fairly  so. 

Mr.  M<«sB.  This  is  a  copy  of  it  I  have  here  [handing  paper  to 
Mr.  Cowan]. 


KAXIMUM  PEOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  97 


Mr.  Cowan.  Yes;  we  have  copies  of  this. 

Mr.  Morse.  Have  you  any  criticism  to  make  as  to  the  divisions  of 
the  businesses  in  classes  1,  2,  and  3;  that  is,  the  segregations  in  class  1 
and  in  class  2  and  in  class  3? 

Mr.  Cowan.  Yes;  I  have. 

Mr.  Morse.  Please  state  what  your  objections  are  to  the  segrega- 
tions in  the  various  classes. 

Mr.  Cowan.  I  understood  from  Mr.  Durand  that  the  rulhiff  was 
that  tentatively  aU  of  our  departments  were  practically  in  class  1, 
and  he  told  me  personally,  and  UAA  it  In  the  presence  of  other  gen- 
tlemen in  his  oflfoe  that  we  would  go  on  under  that  arrangement  fax 
the  time  being. 

Mr.  Mouse.  By  that  arrangemmit  you  mean  this  arrangement? 

Mr.  Cowan,  f  mean  the  arrangement  that  all  the  departments 
were  practically  considered  in  <slass  1,  and  that  after  a  few  months 
tile  matter  would  be  gone  over  with  the  idea  of  allocating  certain 
departments  into  classes  2  and  3,  segregating  them  from  cla^  1,  and 
with  those  instructions  we  went  on  without  any  further  objections. 

We  had  taken  some  exceptions  to  his  including  some  things  in 
class  1.  For  instance,  the  wool  puUery  was  included  as  a  class  1  de- 
partment, and  we  did  not  feel  that  it  was  fair  that  it  should  be  regu- 
lated allowing  but  9  per  cent  profit  on  the  wool  pullery,  when  others 
in  the  same  line  of  business  were  not  regulated  at  all.  In  fact,  it 
placed  us — it  was  an  unfair  regulation.  It  would  be  if  it  was  made 
permanent,  because  others  outside  of  the  packing  industry,  com- 
peting on  the  same  market — ^the  placing  of  us  on  a  9  per  cent  regula- 
tion would  rather  put  us  out  of  business. 

That  was  one.  There  is  another  one.  We  have  several  ocmipeti- 
tors,  large  competitors,  in  the  butterine  business.  Moxley,  W.  J. 
Moxley  &  Co.  and — who  is  the  other! 

Mr.  Goff.  Jelke. 

Mr.  Cowan.  Jelke  &  Co.  and  others  in  the  butterine  business. 
They  are  competitors.  We  are  doing  business  in  the  same  markets 
under  the  same  conditions  and,  of  course,  we  could  not  h^p  but  feel 
we  wm  discriminated  agfdnst. 

Mr.  MoBga.  Don't  you  sell  to  these  people  scmie  of  the  products 
they  use? 

Mr.  Cowan.  We  sell  some.  I  do  not  know  whether  we  s^  to— 
Mr.  Knibf.  Same  packing-house  products? 
Mr.  Cowan.  We  do  not  sell  any  butterine  to  them. 
Mr.  Morse.  I  mean  some  of  the  component  parts  that  go  into 
butterine. 

Mr.  Cowan.  Well,  we  might  at  some  times  sell  them  butterine  oiL 
That  is  all.   They  buy  from  others.    They  buy  from  us  also. 

Mr.  Morse.  How  would  you  compete  with  these  people  if  you 
jjold  them  some  of  the  products  that  go  into  the  butterine,  or 
go  into  whatever  it  may  be  ?  You  sell  them  the  raw  material,  don't 
you  ? 

Mr.  Cowan.  We  do  s^  thmn  raw  materiaL  It  is  sold  on  the 
market.  Take  oleo  oil,  for  instance.  Oleo  oil  has  an  estaUifilied 
market.  The  price  we  get  for  that  oil  is  the  same  they  would  get 
out  on  the  mancet  when  buying  elsewhere,  and  it  would  be  tlie  same 
price  that  we  would  perhaps  duirge  to  our  own  dj^aitmente. 

18a88&— 8.  Doc.  UO,  66-1  7 


98   MAXIMUM  vsmm  umixatiok  oxr  mbat-paokhtg  imusi&T. 

Mr.  Morse.  You  mean  to  say  you  would  sell  them  any  surplus 
you  have  or  you  could  not  use  yaiurself,  is  that  it! 

Mr.  Cowan.  Yes,  we  would. 

Mr.  Morse.  Are  there  any  other  lines  in  dass  1  that  you  think 
should  be  placed  in  either  class  2  or  3  ? 

Mr.  Cowan.  If  that  is  our  whole  list — ^this  is,  Frank,  is  it  not  I 
Mr.  Knief.  Yes,  that  is  our  whole  list. 
Mr.  Cowman.  I  would  say  not. 

Mr.  Morse.  You  do  not  think  of  any  other  class  of  business  or 
any  other  kind  of  business  that  is  now  in  class  1  that  should  go  in 
class  2  or  3  9 

Mr.  CowAij,  I  do  not  think  so. 

Mr.  MoRSB.  According  to  your  idea? 

Mr.  Cowan.  I  do  not  think  so,  Mr.  Morse.  If  the  others  were 
all  under  the  regulation,  1  would  consider  it  fair. 
Mr.  MoBSE.  Are  you  familiar  with  the  Canadian  regnjationat 
Mr.  CowAK.  I  would  like  to  take  up  class  2  first. 
Mr.  MoBSS.  Certainly. 

Mr.  Cowan.  Under  class  2  under  the  16  per  cent  regulation,  there 
is  animal  food  and  bedding  and  glue  and  soap,  curled  hior,  animal 
oil,  and  tanning,  which  we  feel  ought  to  go  in  class  3. 

Taking  them  up  in  the  order  in  which  they  come,  there  is  animal 
food,  which  is,  using  a  packing-house  term,  what  we  call  high-protein 
tankage.  This  is  something  that  is  processed.  This  is  a  product 
which  is  processed  beyond  the  state  in  which  it  is  ordinarily  mar- 
keted, and  it  brings  it  into  a  class  of  business  which  is  in  a  competi- 
tive way  outside  of  the  ordinary  packing-house  products.  Of  course, 
we  are  competitors  in  that  line  with  many  others  who  are  producing 
the  same  products.  The  same  point  arises  there — that  we  are  regu- 
lated and  the  other  party  is  not. 

Bedding  is  something  entirely  outside  of  the  packing-house  line. 
Our  bedding — perhaps  you  can  tell  me  what  percentage  of  outside 
hair  it  is,  Frank;  can  you  tell  me  ojfthand! 

Mr.  Knief.  It  is  80  per  cent  outside  hair. 

Mr.  Cowan.  Eighty  per  cent  outside  of  our  own  hair— the  hair  pro- 
duced at  the  packing  house,  or  from  the  killing  or  slaim;htering,  as 
you  call  it — under  these  regiilations  is  outside  l^ir,  and  we  are  com- 
peting in  that  department — our  bedding  department— :We  are  ciNn- 
petitors  with  all  the  bedding  concerns  that  are  in  Hob  oomitry  who 
produce  hair-stuffed  bedding. 

Mr.  Morse.  Where  do  these  bedding  companies  purchase  their  hairf 

Mr.  Cowan.  They  purchase  it  aU  around,  the  same  as  we  do-— any- 
where they  can  get  it. 

Mr.  Morse.  Don't  they  purchase  the  principal  part  from  you? 

Mr.  Cowan.  Not  at  all.  We  do  not  sell  any.  All  we  do  is  buy. 

Mr.  Morse.  I  should  make  that  a  little  more  general.  From  the 
packers,  do  they  purchase  from  the  packers? 

Mr.  Cowan.  I  do  not  know  whether  they  do  from  the  packers. 
Thev  don't  from  us,  because  we  are  buying  hair  and  not  selling. 

Mr,  Morse.  In  fact,  you  have  no  surplus  of  hair ! 

Mr.  Cowan.  No. 

Mr.  MoBSB.  You  use  up  all  you  have! 
Ur.  Cowan.  Yes. 


MAXIMUM  PROFIT  UMITATIOK  ON  MBAT-PACKINa  INDUSTBY.  99 

Mr.  MoBSB.  You  sell  none  at  all! 
Mr.  Cowan.  No. 

Mr.  MoBSB.  But  you  buy  in  Uhe  mark^  wherever  you  can  buy  lit 

Mr.  Cowan.  Wherever  we  can  buy  it. 

Mr.  MoBSE.  You  do  buy  from  the  packers  ? 

Ifr.  Cowan.  I  do  not  think  so.  Do  we,  Frank! 

Mr.  Knief.  It  may  be,  in  very  isolated  cases. 

Mr.  MoBSE.  What  class  of  concerns  do  you  buy  this  hair  fnnnf 

Mr.  Knief.  What  was  that  question? 

Mr.  Morse.  What  class  of  concerns  do  you  buy  this  hair  from; 
what  is  their  line  of  business?   What  is  their  main  line  of  business? 

Mr.  Knief.  That  is  problematical.  .1  would  have  to  get  out  some 
of  the  vouchers  and  find  out. 

Mr.  Morse.  Can  you  mention  the  names  of  some  of  the  concerns 
you  buy  hair  of? 

Mr.  Knief.  No;  I  could  not. 

Mr.  Cowan.  We  could  find  out  for  you.  We  buy  it  anywhere  we 
can  get  it,  from  anyone  who  has  it  to  sell. 

Mr.  MoBSE.  We  are  naturally  led  to  believe  that  this  hair  is  a  by- 
product of  different  packing  concerns. 

Mr.  Cowan.  That  is  the  impressicm,  but  it  is  wrong. 

Mr.  MoBSE.  That  it  is  bought  from  some  other  packers,  lai^ge  uid 
small.  That  is  what  we  are  trying  to  find  out,  if  there  is  any  other 
way  you  can  produce  hair  or  bedcung  except  as  a  by-product  from  a 
packing  house.  Can  you  enlightra  us  on  tiiat? 

Mr.  Cowan.  I  can  not 

Mr.  EInief.  We  can  get  out  some  of  the  vouchers. 

Mr.  Cowan.  We  can  get  you  that  information — glad  to  do  so. 

Mr.  Morse.  Does  Wilson  &  Co.  run  as  large  a  bedding  establish- 
ment as  any  of  the  other  packers?  Are  you  particularly  ^igaged  in 
that? 

Mr.  Cowan.  I  think  so.  I  do  not  think  the  other  packers  are  en- 
gaged in  it. 

Mr.  Chase.  There  is  no  other  packer  doing  it. 
Mr.  Morse.  So  Wilson  &  Co.  are  the  only  packers  running  a 
bedding  department? 

Mr.  Cowan.  As  far  as  I  know. 

Mir.  Morse.  And,  naturally,  you  buy  their  hair,  don't  you? 
Mr.  Cowan.  I  do  not  know  how  much  we  buy.   I  do  not  know 
whether  we  bought  some;  I  suppose  we  have  bou^t  some. 
Mr.  Knief.  From  the  other  padEersf 
Ifr.  Cowan.  I  dont  know. 
Ifir.  fi^NiBV.  We  may  have  bought  some. 

Mr.  Morse.  What  axe  the  gross  sales  for  the  year  for  the  bedding 
department? 
Mr.  Cowan.  Can  you  answer  that,  Frank!  * 
Mr.  Kniep.  Not  offhand. 
Mr.  Morse.  About. 

Mr.  Cowan.  How  long  since  this  department  was  opened?  It  is 
only  a  short  time  ago. 

Mr.  Knief.  I  do  not  think  it  is  a  year  old. 

Mr.  MoBSE.  What  percentage  of  your  entire  business  is  your 
bedding? 


100     MAxmuM  nam  hmmmom  m  MaAaHPAosiiia  mrnmmt. 

Mr.  Cowan.  A  small  percentage  of  our  entire  busineM. 
Mr.  Knief.  Mighty  small. 

Mr.  Morse.  You  aro  not  able  to  put  an  estimate  on  it,  are  you! 

Mention  the  amount. 

Mr.  Cowan.  I  could  not.   No;  I  could  not. 

Mr.  Morse.  Are  there  any  other  things  that  you  consider  wrongly 
classified  ? 

Mr.  Cowan.  Yes;  there  is  glue.  Glue;  we  are  competitors  of  all 
the  glue  concerns  in  the  country,  and  I  guess  there  are  a  thousand 
glue  concerns  in  the  United  States ;  and  the  same  explaniilioii  and 
tile  same  objection  would  apply  to  glue.  We  feel  that  there  is  no 
reason  why  we  should  be  singled  out  and  regulated  as  to  our  profit 
in  glue. 

Mr.  MoBSB.  Are  the  best  grades  of  glue  generally  made  out  of 
animal  products  or  out  of  some  other  material;  do  you  know  that? 

Mr.  Cowan.  I  think  the  best  grades  of  glue  are  made  from  ani- 
mal products. 

Mr.  Morse.  So  that  really  there  is  no  competition  between  the 
glue  made  out  of  animal  products  and  that  made  out  of,  say,  veg- 
etable products,  as  the  glue  made  out  of  animal  products  is  better. 

Mr.  Cowan.  I  would  say  there  is  a  division — I  do  not  know  as  to 
the  grades  of  glue,  whether  any  vegetable  glues  might  be  higher* 
grade  or  better  glues  than  animal  glues.   I  do  not  think  they  are. 

Mr.  Morse.  Have  you  any  knowledge  on  that,  Mr.  Cowan  ?  I  con- 
fess I  have  not. 

Mr.  Cowan.  No  ;  I  am  not  a  glue  man.  I  don't  know  much  about 
it.  I  do  know  there  are  thousands  of  glue  concerns  in  the  country, 
and  their  products  are  made  from  animal  materials,  that  these  ani- 
mal materials  are  supplied  by  small  butchers  and  fat  collectors  and 
rendering  companies,  and  aU  in  that  line  of  business  all  over  the 
oountry,  and  that  a  lot  of  that  stuff  finds  its  way  into  glue,  and  the 
maledlals  are  purchased  by  glue  manufactoieffs.  Of  oo^unMy  we 
have  the  materials  here. 

Mr.  Morse.  Do  you  manufacture  all  of  the  glue  materials  yourself 
or  do  you  sell  some  to  outside  concerns  ? 

Mr.  Cowan.  No,  we  manufacture  it  all. 

Mr.  Kniep.  We  have  sold  some  where  we  could  not  handle  it, 
whore  we  did  not  have  enough  tank  capacity  in  our  bone  house  to 

handle  it. 

Mr.  Morse.  In  other  words,  you  sell  the  surplus  to  other  people. 
Mr.  Cowan.  That  would  appear  to  be  true. 

Mr.  Morse.  Would  not  you  say,  Mr.  Cowan,  that  you  are  a  little 
fearful  of  competition,  when  as  a  matter  of  fact  that  could  not  exist 
on  account  of  the  fact  that  you  control  the  original  source  of  supply 
and  have  to  sell  the  surplus  to  outside  concerns? 

Mr.  Cowan.  If  we  did  control  the  original  supply  of  materials 
that  would  be  true,  but  we  do  not;  we  do  not  control  any  part  of  it 

Mr.  Morse.  You  misunderstand.  I  do  not  think  the  packers  hold 
control,  but  I  mean  you  yourself;  you  ccmtrol  the  by-products  Which 
you  di>tain  £rom  the  animals.  Yon  have  got  to  ccmtrol  thati  and  see 
tliat  you  do,  and  you  use  such  parts  of  mat  as  yon  find  cmyeiasat 
or  necessary  to  meet  your  demand  for  the  particular  articles  ^ou 
WB&t  to  produce,  and  the  balance  you  sell.  Now,  dont  yon  mmk 


that  competition  would  be  very  small  as  against  a  concern  that  con- 
trols the  very  articles  they  are  selling  to  somebody  that  wants  to 
compete  with  them  in  manufacturing  the  same  articles? 

Mr.  Cowan.  I  do  no  know  that  I  quite  understand  you. 

Mr.  Morse.  Now,  let  me  make  that  a  little  plainer,  if  I  can.  Take 
in  the  case  of  glue.  You  have  certain  by-products  that  you  use. 
What  you  can  not  use  yourself  you  sell  to  some  one  else.  You  first 
have  had  the  benefit  of  the  market  supply  and  demand.  Your  ma- 
terial has  been  cheap  to  you,  because  you  produce  it  yourself,  and 
after  you  have  supplied  the  demand,  somebody  else  comes  forward 
and  wants  to  buy  the  surplus  that  you  have  not  used.  Do  you  really 
think  that  you  have  to  fear  that  man  as  a  competitor? 

Mr.  Cowan.  Yes,  I  do ;  because  the  other  fellow,  our  oomp^ito^ 
is  perfectly  free  to  go  and  buy  and  sell  as  he  pleases  without  any 
regulation  whatever.  .     ,    •  . 

Mr.  Morse.  I  know;  but  vou  people  already  monopolize  the  busi- 
ness.  Now,  I  don't  mean  that  in  the  way  that  it  may  be  taken. 

Mr.  Cowan.  You  mean  we  are  in  a  stronger  position  because  of 
6ur  having  the  material  here  and  not  having  to  go  out  and  buy. 

Mr.  McHKSE.  Yes. 

Mr.  Cowan.  I  might  answer  that  by  saying  there  is  a  market  for 
those  materials  always,  whether  we  have  those  materials  here  or  not. 

Mr.  Morse.  But  you  do  not  have  to  go  out  into  the  market  and  - 
purchase  these  materials? 

Mr.  Knief.  We  have  to  occasionally. 

Mr.  Morse.  Occasionally;  yes.    I  can  see  that. 

Mr.  Cowan.  There  is  a  niarket  for  those  materials,  Mr.  Morse,  and 
whether  we  have  the  materials  or  whether  the  other  fellow  has  them 
there  is  that  market;  the  market  is  established.  What  difference 
does  that  make,  whether  wc  control  the  materials  and  not  go  through 
the  operation  of  producing  glue   ' 

Mr.  Morse.  That  is  true,  but  you  already  own  those  materials. 
You  do  not  have  to  go  to  the  mai^^j  so  you  can  compete  with  the  out- 
sider ;  you  certainly  do  not  fear  Ms  competiti<m. 

Mr.  Cowan.  May.  I  ask  a  question  there? 

Mr.  MoBSE.  Certainly. 

Mr.  Cowan.  What  would  be  the  object  of  regulating  us  and  sm- 
ffling  out  the  packers  or  Wilson  &  Co.,  or  regulating  us  and  saying, 
"  You  may  have  15  per  cent,"  while  the  other  fellow  is  absolutely 
free  to  biiy  and  sell  as  he  pleases  and  make  as  much  money  as  he 

pleases  ? 

Mr.  Morse.  Only  this.  You  have  expressed  a  fear  of  competi- 
tion in  certain  lines.  Therefore  you  want  the  restriction  removed  as 
to  profit  against  those  lines  so  that  you  can  compete  with  the  out- 
sider, and  my  line  of  inquiry  has  been  such  as  to  try  to  show  you 
that  your  fears  of  competition  might  be  groundless,  that  you  have 
nothing  to  fear  from  the  outside,  because  you  control  the  source  of 
supply  more  or  less.    I  do  not  say  altogether.    You  do  more  or  less. 

Mr.  Cowan.  You  see,  we  control  so  small  a  part  of  that  source  of 

^r?^MoRSE.  You  control  it  all  as  far  as  Wilson  &  Co.  are  concerned; 
that  is,  what  Wilson  &  Co.  use  you  control  it  all. 

Mr.  Cowan.  Well,  we  control  it,  but  we  control  it  at  a  price  as 
hi^  as  the  other  fellow  would  have  to  pay  fcyr  it 


Mr.  Morse.  But  you  are  taking  a  profit  there. 

Mr.  Cowan.  We  are  not. 

Mr.  Morse.  You  are,  when  you  consider  the  market  price. 
Mr.  Cowan.  Absolutely  not. 

Mr.  Morse.  You  are  taking  a  profit  before  you  sell  your  goods  ? 

Mr.  Cowan.  No;  we  are  not.  That  is  where  I  want  to  take  ex- 
ception. Anything,  any  by-products,  any  materials  which  are  the 
result  of  our  handling,  we  will  say,  which  are  the  result  of  our  kill- 
ing, is  credited  to  our  beef,  we  will  say,  or  to  our  pork,  at  its  full 
market,  and  that  places  it  in  our  hands  as  a  bj-product  or  material 
for  the  manufacture  of  a  by-product  at  a  price  which  many  times 
is  about  the  market  price  on  that  very  same  matarlaL  la  not  Ihaft 
the  fttctf 

Mr.  Kkiv.  Yes. 

Mr.  MoBSB.  Now,  Mr.  Cowan,  you  can  not  always  regulate  these 
by-pfoducts,  can  you!  Sometimes  you  will  kill  a  lot  of  animals  to 
meet  the  demand,  say,  for  fresh  beef,  pork,  and  what  not,  and  you 
will  accumulate  a  large  supply  of  by-products  of  various  kinds, 
fttts,  what  they  go  into,  glue,  whatever  it  is,  accumulate  a  lot;  you 
can  not  use  them  up  and  you  have  to  preserve  them  probably  at  an 
expense,  and  have  to  keep  them  in  condition,  so  that  when  the 
market  is  so  you  can  use  them  to  advantage,  you  do  so;  in  fact,  your 
having  a  large  lot  like  that,  it  would  not  pay  you  to  Avork  them  all 
up  at  once,  because  it  would  be  a  loss,  but  you  wait  until  the  time  is 
convenient,  when  you  can  convert  these  by-products  at  the  proper 
time  into  whatever  you  want  to  manufacture  them,  is  not  that  true? 

Mr.  Cowan.  That  is  true. 

Mr.  Morse.  And  at  times  you  have  to  keep  these  materials  a  week, 
a  month,  two  or  three  months,  or  six  months,  and  may  be  a  year! 

Mr.  CowAN.  Yes;  and  may  be  we  have  to  pav  storage  on  it,  build 
up  an  expense,  and  pay  insurance,  carry  tbsm  along. 

Mr.  Mgbse.  In  the  meantime? 

Mr.  Cowan.  In  the  meantime  ;  ^es. 

Mr.  MoBSB.  You  are  put  to  quite  an  expense  as  you  carry  them 

along? 
Mr.  Cowan.  Yes. 

Mr.  Mgbse.  Therefore,  this  being  the  case,  any  market  price  fixed 
on  these  products  at  any  particular  time,  considering  the  market 
price,  is  merely  a  book  profit;  it  is  not  a  profit  until  the  article  is 
sold? 

Mr.  Cowan.  There  is  no  such  thing  as  profit  until  the  article  is 
sold. 

Mr.  Morse.  What  is  that? 

Mr.  Cowan.  There  is  no  such  thing  as  profit  until  the  article  is 
sold.  It  lias  been  our  experience  right  along  this  line  that  time 
after  time,  and  it  is  repeated  over  and  over,  materials  of  this  sort  in 
our  inventories  are  carried,  after  adding  our  carrying  charges,  our 
inventories,  at  prices  which  are  far  in  excess  of  what  we  can  get  out 
on  the  market  and  buy  it  at. 

Mr.  Mouse.  In  other  worda,  you  might  make  a  book  profit  or  might 
make  a  bodk  loss,  and  when  you  place  this  so-called  market  price  oh 
these  products  you  are  either  taking  the  present  book  profit  or  the 
book  loss,  and  you  do  not  know  wlddx  it  is  until  the  article  is  finally 
disposed  of  to  a  customer  ! 


ICAXIICUM  PBOFIT  LIMITATIOK  Olf  MBAT-PAflKUTa  ITOTOIRlf.  108 


•  Mr,  Cowan.  That  is  true. 

Mr.  Mobsb.  So  your  periods  of  ascertaining  of  i«x)fit  do  not  show 
real  profits  always,  do  they  ?  For  instance,  you  make  up  a  statement 
as  of  a  particular  date  as  to  profits.  Now,  you  state  your  profits  or 
^  your  losses,  whatever  the  case  may  be.  as  so  much.  That  is  not  neces- 
sarily actual  or  true,  because  the  goods  have  not  been  finally  disposed 
of  to  the  customer  and  you  have  not  got  your  return  on  it,  you  have 
not  been  paid  for  it,  so  your  profits  necessarily  are  untrue  to  that 

V  extent.  „       n    ^  j.- 

^  Mr.  Cowan.  The  profits  are  untrue  to  the  extent  of  any  fluctuations 

there  may  be  or  any  inflation,  or  the  opposite,  that  there  may  be  in 
our  inventories,  which  we  carry  over. 

Mr.  MoKSE.  Whenever  you  take  an  inventory,  do  you  take  a  portion 

V  of  it  at  market  value  and  a  portion  of  it  at  cost,  and  a  portion  of  it 

V  estimated,  and  like  that?  ■  ., ,    -.r    -^r  * 

Mr.  Cowan.  We  take  it— we  try  as  far  as  possible,  Mr.  Morse,  to 
take  our  inventories  at  the  market. 

Mr.  MoRSE.  Is  there  any  portion  of  it  taken  at  cost? 
.  Mr.  Cowan.  How  is  that,  Frank? 

>  Mr.  Knief.  The  bedding  department  is  at  cost,  and  the  carcass 

account,  if  we  have  any  carcasses  on  hand. 

Mr.  Cowan.  This  is  peculiar  to  the  packing  business.  It  is  peculiar 
to  the  packing  business.  It  is  not  good  accounting,  perhaps. 

Mr.  MoBSB.  Mr.  Cowan,  you  have  had  tnuning  as  an  accountant, 

^         have  you  not? 

Mr.  CowAN.  I  have. 

Mr.  MoRSE.  It  is  the  accepted  theory  among  accountants  that  m- 
ventories  should  all  be  made  at  cost? 
Mr.  Co  WAN.  Yes,  sir. 

V  Mr.  MoRSE.  Whenever  an  inventory  is  made,  as  indicated  at  cost, 
^          are  you  either  taking  the  book  profit  or  the  book  loss,  and  of  the  date 

.    that  yon  make  up  your  profit  statement? 
Mr.  Cowan.  Yes,  sir. 

Mr.  Morse.  And  your  profits  or  losses  so  stated  are  more  or  less 

V  fictitious  ? 

r  Mr.  Cowan.  True. 

Mr.  Morse.  In  your  opinion,  do  you  think  a  cost  system  could  be 
instaUed  in  the  packing  industry  that  would  give  actual  cost,  so 
that  inventories  and  transfers  between  departments  could  be  chai^ged 
or  credited  at  cost? 
y  Mr.  Cowan.  I  think  it  would  be  exceedingly  difficult. 

Mr.  Morse.  You  think  it  would  be  very  difficult  or  exceedingly 
difficult,  but  do  you  think  it  is  possible?  I  have  come  to  you  tor 
that  information ;  you  are  an  accountant  and  I  have  no  doubt  you 
have  given  it  very  hard,  careful  consideration,  because  you  realize 
the  importance  from  an  accounting  standpoint  of  getting  the  exact 
^  cost,  or  as  near  the  exact  cost  as  it  is  possible  to  get. 

Mr.  Cowan.  I  want  to  answer  your  question,  and  I  want  to  answer 
^  it  intelligently. 

Mr.  Morse.  That  is  why  I  ask  you  about  these  difficulties— you 
know  them  better  than  I  do,  because  you  have  had  the  same  training 

V  that  I  have  had  and  in  addition  you  have  had  the  experience  of 
y         being  on  the  inside  and  having  studied  carefully  the  packing 

industry.  , 


104       MAXIMUM  PBOFIT  LIMITATIOlir  ON  M£AT-PACKING  INDUSIBY, 


Mr.  Cowan.  I  want  to  illustrate  one  of  the  difficulties.  Say  that 
you  buy  a  thousand  hogs  to-day  on  the  market  here  in  Chicago,  and 
we  will  charge  the  fresh-pork  account  with  the  total  cost  of  that 
thousand  hogs.  The  hogs  are  brought  in  here  and  are  killed  and 
hung  a  few  days  in  our  chill  rooms,  and  then  they  are  out,  they  go  into 
the  cutting  department  and  they  are  cut,  and  they  are  cut  into  the 
various  pork  cuts,  the  hams  and  the  ribs  and  the  loins  and  all  the 
vark)us  cuts — how  many  would  there  be,  Frank,  how  many  cuts  on  a 
regular  ordinary  cutting,  just  a  guess? 

Mr.  Kkibf.  I  would  say  50. 

Mr.  Cowan.  Fifty  different  cuts  out  of  a  hog.  Now,  I  am  frank  to 
confess  that  I  am  not  accountant  enough  to  be  able  to  determine  the 
cost  on  the  50  various  cuts  out  of  that  hog.   Some  of  those  cuts,  a 

certain  percentage  of  them,  go  to  the  sweet-pickle  department,  some 
of  them  to  the  dry-salt  department,  others  are  sold  n^h.  There,  is 
the  cost  of  curing  those  various  kinds  in  the  pork  department,  and 
I  want  to  say  that  I  think  it  would  be  almost  impossible  to  determine 
the  cost  of  those  products  as  they  are  ready  for  public  consumption. 
It  could  only  be  obtained  by  arbitrary  prices  being  placed  upon 
them,  and  wlien  we  get  into  arbitrary  prices  we  have  lost  the  cost 
element. 

Mr.  Morse.  You  know,  Mr.  Cowan,  that  it  is  claimed  that  cost 
systems  have  been  installed  in  hotels  where  they  buy  a  slab  of  beef 
or  a  side  of  mutton,  or  what  not,  and  can  tell  the  exact  cost  of  each 
cut,  each  lamb  chop  a  man  eats? 

Mr.  Cowan.  I  have  heard  of  it. 

Mr.  MoRSE.  Tlie  slice  of  roast  beef  put  on  his  plate,  his  potato 
that  he  puts  into  his  mouth,  and  all  that  ? 

Mr.  OowAN.  I  have  heard  such  a  thing  has  been  done. 

Mr.  Mosffi.  Do  vou  think  if  that  can  be  done  in  a  business  as 
fluctuating  as  the  hotel  business  it  could  not  be  done  in  a  business 
induslrvf 

Mr.C  yOWAN.  I  don't  believe  it  is  done  in  the  hotel  business. 

Mr.  Morse.  I  would  not  swear  to  it.  Mr.  Cowan,  as  to  the  assets 
of  Wilson  &  Co.,  do  your  books  show  the  segregation  of  your  invest- 
ments through  classes  1, 2,  and  3,  as  prescribed  by  the  United  States 
Food  Administration  rules  and  regulations? 

Mr.  Cowan.  Our  books  do  not,  Mr.  Morse. 

Mr.  Morse.  You  have,  however,  I  presume,  compiled  some  statis- 
tical record  of  arriving  at  the  amount  of  investment  in  these  classes! 
Mr.  Cowan.  We  have. 

Mr.  Morse.  The  books  by  themselves  do  not  show  this  without 
making  some  additional  figuration? 

Mr.  Cowan.  No  ;  they  have  never  been  kept  that  way,  but  we 
have  not  changed  them. 

Mr.  Morse.  Do  you  consider  the  way  that  you  have  divided  up 
your  capital  investment  in  these  three  classes  to  be  absolutely  accu- 
rate? 

Mr.  Cowan.  As  near  as  is  possible  to  determine. 
Mr.  MoBSE..  As  near  as  is  possible  with  the  material  available  t9 
determine  what  the  investment  is  of  each  class! 
Mr.  OowAN.  Yes,  sir. 

Mr.  MoBSB.  Mr.  Cowan,  the  balance  cdieet  of  Wilson  &  Co.  for  the 
period  ending  1917jBhow8  net  fixed  assets  of  about  pi^flOOfiOO.  Do 


XAxnctnc  fbort  uMmMrmv  oir  mbat-paoking  vmmsf.  105 


you  consider  that  that  is  the  actual  vklue  of  the  assets  of  Wilson  & 
Co.  at  that  period.  I  am  making  a  distinction,  Mr.  Cowan,  in  asking 
that  question,  between  the  book  value  and  the  actual  value? 

Mr.  Cowan.  I  don't  think  it  represents  the  full  value,  speaking  of 

actual  values. 
Mr.  Morse.  Why  not? 

Mr.  Cowan.  Well,  for  the  reason  that  to  replace  our  property  at 
the  present  time  would  probably  cost  us  50  per  cent  in  excess  of  that 
$26,000,000,  the  replacement  value  of  those  properties. 

Mr.  Morse.  You  mean  1914,  1915,  1916,  1917,  and  1918? 

Mr.  Cowan.  I  am  speaking  of  the  date  which  you  have  given, 
1917.  I  have  no  doubt  it  would  cost  us  50  per  cent  more  to  replace 
those  properties. 

Mr.  MoRSB.  How  was  tiiiis  valuation  of  $26,000,000  obtained! 

Mr.  Cowan.  It  was  obtained  by  an  apprai^  in  1915,  was  it  noty 
Mr.  Goff? 

Mr.  MoBSE.  By  whom! 

Mr.  GoFF.  M.  J.  Flaherty. 

Mr.  Morse.  Who  is  he? 

Mr.  GoFF.  He  is  a  Chicago  appraiser. 

Mr.  Morse.  He  operates  an  appraisal  cmnpuiy  or  appraises  prop- 
erty on  his  own  

Mr.  GoFF.  He  is  in  that  business. 

Mr.  Morse.  He  appraised  this  property  at  what  amount?  Do 

you  remember? 

Mr.  GoFF.  In  1915? 
Mr.  Morse.  Yes. 

Mr.  GoFF.  Something  less  than  that  amount  which  you  have  men- 
tioned. 

Mr.  Cowan.  The  difference  between  this  26,000,000  that  you  men- 
tioned and  any  additions  that  were  made  between  the  date  of  his 
appraisal  and  this  date — depreciation,  I  should  say,  any  depreciation 
deducted — the  depreciation  was  deducted  from  this  26,000,000,  was 
it  not,  Mr.  Goff  ? 

Mr.  GoFF.  Yes,  sir ;  it  show  the  net. 

Mr.  Morse.  Mr.  Flaherty,  when  he  made  the  valuation  in  1915,  did 
he  use  the  cost  price  or  maricet  price  or  replacement  price  at  that 
time,  do  you  faiow  ? 

Mr.  Cowan.  I  am  sure  I  could  not  say.  It  was  primr  to  ray  f&ne 
here. 

Mr.  Morse.  Do  you  know  that,  Mr.  Goff  ? 

Mr.  Cowan.  I  don't  know  whether  he  used  the  cost  of  the  material 
or  the  market. 

Mr.  GoFF.  Yes,  he  used  

Mr.  Cowan.  Of  course,  he  must  have  used  the  market. 
Mr.  GoFF.  He  used  the  market  prices  at  that  time  ? 
Mr.  Morse.  The  market  price  was  the  basis  of  the  appraisal  at 
that  time? 

Mr.  Cowan.  I  don't  believe,  Mr.  Morse,  any  of  us  are  competent  to 
say  now,  because  we  don't  know  what  he  had  in  mind. 

Mr.  Morse.  Do  you  believe,  Mr.  Cowan,  that  you  should  be  allowed 
profits  on  what  you  consider  the  present  value  of  your  plant? 

Mr.  Cowan.  Yes,  sir;  I  do. 


106       MAJUMUM  PBOVIZ  UMUiLXlOlir  OK  ICfiAX-f  AGKIIifQ  l^V&SBX. 


Mr.  Morse.  You  have  talked  that  over  among  yourselves? 

Mr.  Cowan.  Yes,  sir;  we  have  talked — ^^we  discussed  it  with  Mr. 
Durant  at  the  time  when  the  profit  regulations  went  into  effect.  We 
told  Mr.  Durant  that  we  felt  that  we  ought  to  take  in  and  add  to  our 
property  the  amount  of  our  good  will,  which  is  $11,000,000. 

Mr.  Morse.  You  have  not  apijlied  to  any  governmental  officials  or 
bodies  to  obtain  permission  to  increase  your  plant  account  to  what 
you  consider  its  present  value? 

Mr.  OowAN.  We  have  not. 

Mr.  Mown.  Do  you  intend  to  make  any  such  request? 
Mr.  C!owAN.  No,  sir. 

Mr.  MoBSB.  You  do  not  intend  to  make  any  nich  reqiMtt 
Mr.  Cowan.  There  is  no  intention  now ;  no,  sir. 
Mr.  Morse.  In  your  balance  sheet  you  have  an  item  of  gpod  will 
about  $11,000,000  ? 
Mr.  Cowan.  Yes,  sir. 

Mr.  Morse.  Is  that  considered  by  you  in  any  way  part  of  your 
investment  in  classes  1,  2,  and  3? 
Mr.  Cowan.  It  is  not. 

Mr.  Morse.  Does  this  $11,000,000  good  will  represent  common 
stock  that  was  issued  at  the  tinie  of  the  organization  of  Wilson  & 
Co.? 

Mr.  Cowan.  That  I  can  not  answer. 

Mr.  Morse.  Can  you  answer  that  question,  Mr.  Goflf? 

Mr.  Goi  F.  No,  I  don't  think  I  can. 

Mr.  Cowan.  Mr.  Goff  was  here.  I  was  not  in  the  organization 
at  that  time. 

Mr.  Morse.  There  is  no  one  present,  none  of  you  gentlemen  that 
know  just  what  this  good  will  represents  on  the  balance  sheet,  ez- 
oept  take  it  on  its  face,  and  you  don't  know  whether  there  was  com- 
mon stock  or  any  securities  issued  against  it. 

Mr.  Ck)WAN.  Personally  I  do  not  know,  but  if  you  want  informa- 
tion, I  will  be  glad  to  supply  it. 

Mr.  Morse.  I  will  say,  Mr.  Cowan,  I  don't  think  that  is  material, 
but  as  long  as  you  say  it  was  not  taken  in  as  a  part  of  your  invest- 
ment, I  don't  know  as  it  is  material  from  the  Government's  stand- 
point, although  as  I  understood  you  stated  a  while  ago,  you  wanted 
to  add  that  to  your  plant  value. 

Mr.  Chase.  Don't  you  want  to  talk  that  over  some  time? 

Mr.  Cowan.  I  do. 

Mr.  Chase.  I  think  it  would  be  well  to  get  that  information  in 
the  meantime. 

Mr.  Cowan.  I  would  like  it  very  much.  I  would  like  to  argue 
that  point. 

Mr.  Morse.  Mr.  Cowan,  suppose  we  leave  it  that  way,  that  Mr. 
Chase  shall  see  you  some  other  time  and  have  a  conversation  regard- 
ing that. 

Mr.  Cowan.  Yes,  I  will  be  glad  to  go  into  Mr.  Chasers  <^ke  or 
flee  him  before  you  leave,  while  you  are  here,  at  any  time  you  wftnt; 
I  would  like  to  have  the  facts  before  me. 

Mr.  Momm.  Now,  you  have  in  your  bumneas,  I  j^resume^  «  great 
deal  of  borrowed  money!  • 

Mr*  Cgwak.  Yes,  sir. 


MAXIMUM  PBOJ*!!  UMIIATION  ON  MEAT-PACKING  INDUSTBY.  107 

Mr.  Morse.  What  is  the  average  rate  that  you  paid  for  your  bor- 
rowed money  ? 

Mr.  Cowan.  The  average  rate  for  what  period  ? 
^  Mr.  Morse.  For  the  period  November  1, 1917,  to  date,  what  would 

it  average;  what  per  cent? 

Mr.  C&WAN.  I  do  not  like  to  venture  a  guess  on  that.  I  would  like 
to  get  information  to  be  exact. 

Mr.  M<»8B.  Do  you  think  it  averages  6  per  cent? 
y         Mr.  Cowan.  I  should  say,  roughly,  6  per  cent. 

Mr.  Morsb.  Any  ezoees  over  5  per  cent  you  charge  to  cost  of  pro- 
duction, do  you  not? 

Mr.  Cowan.  We  do. 

Mr.  Morse.  According  to  the  paragraph  here  in  the  rules  and 

regulations  ? 
^  Mr.  Cowan.  We  do. 

Mr.  Morse.  That  is  on  borrowed  money? 
Mr.  Cowan.  Yes,  that  is  right. 

Mr.  Morse.  This  company  has  a  bond  issue,  has  it  not? 

\  Mr.  Cowan.  Yes,  sir. 

r  Mr.  Morse.  Of  some  $15,000,000? 

Mr.  Cowan.  $15,000,000. 

Mr.  Morse.  What  rate  of  interest  do  those  bonds  bear? 
Mr.  QoFF.  Six  per  cent. 

V  Mr.  Morse.  Then  the  difference  between  5  and  6  per  cent,  namely 
r       1  per  cent,  you  charge  to  the  cost  of  production  ? 

Mr.  Cowan.  Yes,  sir. 

Mr.  MoBsa.  According  to  this  paragraph? 
Mr.  Cowan.  Yes,  sir. 

Mr.  Morse.  When  your  bonds  were  sold  to  or  underwritten  by  the 

V  banking  mterests,  do  you  know  what  Oiey  netted  you,  what  the  net 
was? 

Mr.  Cowan.  I  don't  know.  Have  you  tba^  information,  Mr.  Goff? 

Mr.  Goff.  Yes,  sir.  ■* 
Mr.  Morse.  How  much  is  it,  Mr.  Goff? 
^^  Mr.  Goff.  Do  you  want  title  exact  %ure? 

Mr.  Morse.  About. 

Mr.  Goff.  The  discount  was  a  million  and  a  quarter,  something 
over  a  million  and  a  quarter. 

Mr.  Morse.  How  did  you  carry  that  discount  on  your  books? 

V  Mr.  Cowan.  We  wrote  it  off  at  the  end  of  1916,  isn't  that  right? 
>^  Mr  Goff.  That  is  right. 

Mr.  MoESB.  So  it  was  all  written  off  in  1916? 
Mr.  QoFF.  Yes,  sir. 

Mr.  MossB.  The  entire  million  and  a  quarter? 
Mr.  GoPF.  Yes,  sir. 
^         Mr.  Chasb.  Operation  or  surplus? 
"         Mr.  Goff.  Surplus. 

Mr.  Whippijb.  I  believe,  Mr.  Cowan,  that  you  said  you  could 
"        divide  vour  assets  so  as  to  comply  with  the  three  classes  that  are 
called  for  in  the  rules  and  regulaticms.  Is  that  true  of  every  other 
feature  of  your  business  so  far  as  your  profits  are  concerned? 

V  Mr.  Cowan.  I  have  not  said  that  we  could  divide  our  assets  in  ac- 
cordance  with  that^  not  on  our  books. 


> 


108     uioxmju  nom  tJMsaussmt  m 

» 

Mr.  Whipple.  I  mean  tiiat  you  could— it  is  possible  to  do  it  by 
figuration.  You  did  not  say  that  they  were  divided  on  your  books, 
but  you  said  tliat  they  could  be,  and  that  you  had  done  so. 

Mr.  Cowan.  We  have  done  so  in  aocordanoe  with  certain  rules 
laid  down  by  Mr.  Chase  and  his  associates. 

Mr.  WmmJB.  I  mean  it  has  been  decided  that  that  is  an  equitable 

figure? 

Mr.  Cowan.  Yes,  sir. 

Mr.  AVhipple.  You  feel  that  it  is  such,  and  the  representatives  of 
the  connuission  feel  tliat  it  is.  Is  that  true  also  of  the  profit  and  loss 
in  eacli  of  tliese  three  divisions,  can  you  determine  the  profit  in 
each  one  of  them?  • 

Mr.  Cowan.  We  can  on  our  main  plants,  but  it  would  be  a  very 
difficult  job  to  determine  that  at  our  branch  houses,  where  all  of  our 
various  products  go  in  together. 

Mr.  Whipplb.  When  you  speak  of  branch  houses  on  your  consoli- 
dated form  which  you  submit,  are  your  luraiich  houses  included  in 
this  separate  division  of  assets  I 

Mr.  Cowan.  Yes,  sir. 

Mr.  Whipim.  You  found  it  possible  to  divide  the  assets  of  youp 
subsidiary  companies  and  your  branch  houses? 

Mr.  Cowan.  Under  the  ruling  of  Mr.  Chase,  yes. 

Mr.  Whipple.  You  siiy  you  don't  think  that  is  possible  with  your 
profit  and  loss? 

Mr.  CowAN.  It  is  possible,  but  it  would  be  an  exceedingly  difficult 
Job 

Mr.  Whipple.  In  other  words,  if  part  of  your  organization  is  not 
brought  under  this  plan  the  same  as  your  parent  organization,  why, 
you  won't  have  a  complete  statement  at  the  end  of  the  period,  will 
you ;  I  mean,  you  won't  have  an  accurate  statement,  by  any  means? 

Mr.  Cowan.  Yes,  we  will,  if  our  profits  are  divided  on  the  basis 
of  the  division  of  the  assets. 

Mr.  Whipple.  But  you  say  you  can  not  determine  the  profits  for 
your  branch  houses  in  the  three  classes. 

Mr.  Cowan.  I  did  not  say  that;  the  profit,  as  a  whale,  we  always 
determine. 

Mp.  Whipmjl  I  did  not  say  that  I  said  between  the  three  classes 
called  for  in  this  regulation,  can  you  determine  the  profit  on  class  1 
in  your  branch  houses? 

Mr.  CowAN.  Oh,  yes;  we  do  that 

Mr.  AVuiPPLE.  You  do  that? 

Mr.  Cowan.  We  do  that  now — divide  that  profit  on  the  basis  of 
the  division  

Mr.  Whipple.  You  can  accurately,  for  your  entire  organization, 

so  divide  your  profits? 
Mr.  Cowan.  Yes,  sir. 

Mr.  Whipple.  As  to  come  within  the  scope  of  this  rule  and  regula- 
tion ? 

Mr.  Cowan.  Oh,  yes. 

Mr.  Whipple.  Are  the  books  of  yoop  home  omce  kept  m  the  same 

manner  as  the  books  of  your  branch  offices? 
Mr.  Cowan.  No,  sir.  ,     ,    ,    ,  * 

Mr|  Whipple.  WouldnH;  that  be  necessary  to  make  the  books  » 

your  branch  offices  uniform  wiUi  those  of  your  home  office? 


maximum  nOFIT  LIMITATION  ON  MEAT-PACKING  HTDUSTBY.  109 


Mr.  Cowan.  It  would  be  impossible  entirely;  that  is,  our  branch 
houses — take  the  branches  as  a  whole,  they  are  a  selling  organization ; 
it  is  a  selling  proposition  entirely. 

Mr.  Whipple.  It  is  a  sellin^i^  proposition  entirely  ? 

Mr.  CowAN.  While  the  books  of  our  parent  company,  of  our  pro- 
ducing plants,  are  a  manufacturing  and  producing  proposition. 

Mr.  Whipple.  How  many  producing  propositions  have  you;  just 
this  one  in  Chicago? 

Mr.  Cowan.  One  in  Qiicago,  one  in  Kansas  City,  one  in  New 
York,  one  in  Oklahoma. 

Mr.  Whipple.  Are  the  books  in  New  York  run  on  the  same  plan 
and  the  same  uniform  system  as  the  books  in  Chicago? 

Mr.  Cowan.  The  same  as  Chicago,  yes;  ail  of  our  packing  plants 
are  operated  

Mr.  Whipple.  Then,  between  your  various  packing  plants  you 
would  have  no  difficulty  in  keeping  a  uniform  system  all  the  way 
through  ? 

Mr.  Cowan.  No.  sir;  we  have  a  uniform  system  now. 
Mr.  Whipple.  Do  you  find  that  your  business  is  such  that  any 
period  smaller  than  a  year,  to  judfre  the  profits  on  the  business  for  a 
eriod  smaller  than  a  3^ear,  would  be  equitable,  or  is  it  a  seasonable 
usiness  that  has  got  to  be  determined  by  a  year's  study,  the  study 
of  a  3^ear? 

Mr.  Cowan.  I  will  answer  that  in  two  ways.  In  the  first  place,  we 
do  close  our  books  always,  we  determine  our  profit  every  month, 
twelve  times  a  year.  With  reference  to  it  being  a  seasonable  busi- 
ness, it  is  in  some  respects.  We  have  our  packing  season,  in  which 
we  accumulate  large  inventories,  and  then  there  comes  a  season  when 
the  inventories  go  down,  when  our  stuff  is  cured  and  we  sell  it. 

Air.  Morse.  It  is  true,  Mr.  Cowan,  as  you  stated  to  me,  ihat  these 
periodical  closings  only  show  the  book  profits  or  book  losses,  on  ac- 
count of  the  methods  of  figuring  inventories,  and  net  knowing  defi- 
nitely what  the  cost  of  those  inventories  is? 

Mr.  Cowan.  That  is  true. 

IMr.  Whipple.  Then  you  think  that  before  the  conwnission  can 
fairly  judge  your  business,  that  they  should  look  at  a  year's  business! 
Mr.  Cowan.  I  do. 

Mr.  Whipple.  Before  deciding  any  point  on  it? 

Mr.  Cowan.  I  do,  absolutely. 
*  Mr.  Whipple.  That  was  the  point  I  tried  to  bring  out. 

Mr.  Morse.  Mr.  Cowan,  do  you  think  that  a  regulation  based  on 
the  percentage  of  sales  would  be  more  easily  computed  and  be  more 
satisfactory  all  around  than  the  present  arrangement,  something 
cm  the  line  or  the  same  as  the  Canadian  regulation  is  ? 

Mr.  Cowan.  I  am  not  familiar  with  the  Canadian  regulation. 

Mr.  MoBSB.  It  is  based  upon  a  percentage  of  gross  sales,  2  or  2^ 
per  cent,  is  it,  Mr.  Chase? 

Mr.  Chase.  Two. 

Mr.  Morse.  Two  per  cent. 

Mr.  CowAK.  I  una^rstand  that  your  quesdcm  is  as  to  whether  it 
would  be  easier — more  easily  computed. 

Mr.  Morse.  And  more  satisfiactory  in  view  of  the  uncertainty  as  to 
what  your  profits  are  at  any  particular  pmod. 


110       MAXIMUM  FBOFIT  LIMIX4TI0K  OK  MBAT-FAOKnTQ  UiWBim. 

Mr.  Cowan.  I  would  like  to  give  that  a  little  thought  beiioie 
■aswering  it, 

Mr.  Morse.  May  I  suggest  that  you  think  it  over  and  write  a  let- 
ter to  Mr.  Chase  and  teU  him  what  your  opinion  on  that  is.  Is  that 
all  right,  Mr.  Chase. 

Mr.  CHASEb  Yes. 

Mr.  Cowan.  I  will  do  so. 

Mr.  Whipple.  Mr.  Cowan,  do  you  believe  that  the  b<Hnowed 
money  in  your  business  is  entitled  to  the  same  rate  of  return  as  your 

own  investment? 

Mr.  Cowan.  Yes,  sir. 

Mr.  Whipple.  And  the  accumulated  earnings  are  entitled  to  the 
same  return  as  the  original  investment? 
Mr.  Co^^  A^'.  Yes.  sir. 

Mr.  WiiirPLE.  In  order  to  determine  the  rate  of  this  business,  one 
thing  I  would  like  to  ask  you  is,  are  there  any  extraordinary  hazards 
in  this  business.  I  mean  aside  from  fluctuations  in  the  market,  some- 
thing which  is  uninsurable?  In  a  great  many  businesses  you  have 
ravages  of  storms,  floods,  and  cyclones. 

Mr.  Cowan.  The  great  hazard  in  this  business  has  always  been 
the  fact  t^at  our  profits  are  perishable. 

Mr.  Whifpuc  Aside  from  that  feature  of  fluctuation  in  the  mar- 
ket, there  are  practically  no  uninsurable  hazards.  Have  you  eyer 
suffered  any  such  ? 

Mr.  CowAN.  I  think  not 

Mr.  Whipple.  You  have  not  suffered  any  loss  through  them.  I 
don't  know  that  there  is  anything  else  here.  On  the  rate  of  depreci- 
ation, do  you  think  that  that  should  be  governed  by  a  uniform  rate 
for  all  companies,  or  do  you  think  ev^  OQmpany  should  be  gov- 

emed  on  its  own  case  ? 
Mr.  CowAN.  You  mean  net,  of  course? 

Mr.  Whipple.  Yes. 

Mr.  Cowan.  I  don't  think  that  a  uniform  rate  for  all  companies 
would  be  any  advantage.  I  think  the  uniform  rate  for  the  various 
classes  of  construction  would  be  desirable. 

Mr.  AV HIPPLE.  You  mean  on  the  various  types,  just  as  you  say  on 
the  various  types  of  construction? 

Mr.  Cow  AN.  Yes,  sir. 

Mr.  WiiiprLK.  That  a  uniform  rate  would  be  advisable? 
Mr.  CowAN.  Yes,  sir. 

Mr.  Whipple.  And  how  would  you  put  that  rate?  You  would 
have  one  rat<>.  for  building,  one  for  machinery,  one  for  your  other 
equipment? 

Mr.  Cowan.  No;  we  compute  ours  on^  I  think,  four  types  of  con- 
struction, do  we  not,  Mr.  Qofll 
Mr.  GoFF.  Five. 

Mr.  Cowan.  Five  types  of  construction.   They  have  a  separate 

rate  on  machineiy  * 

Mr.  MoBsi.  Do  you  recollect  what  that  rate  is,  Mr.  Cowan  ? 

Mr.  Cowan.  What  is  our  rate  on  machinery,  Mr.  Goff?  Seven 

per  cent? 
Mr.  Goff.  Eight  per  cent. 

Mr.  MoBSB.  What  woakd  the  average  be  over  your  %akm  plant? 


> 


> 


V 


> 


Miiacvu  raoFiT  umxuaos  on  mkat-paciong  industby.  m 

Mr.  Cowan.  I  could  not  say. 
Mr.  Goff.  About  6. 

Mr.  a)WAN.  It  would  not  run  as  hirfi  as  that 

Mr.  Goff.  Possibly  noL 

Mr.  Chase.  6.27  as  I  remember. 

Mr  Whipple.  What  method  would  you  use  Mr  Cnw»n  tr.,.  Ai. 

tabuting  the  volume  of  your  business  IZ^^^^Jt^^^i 

Mr  CoX^  maf  the  different  types  oTo^hS?^'''*^' 
^11.  COWAN.  What  IS  our  method  now,  S&.  Knief  ? 
i\lr.  Knief.  We  distribute  it  on  the  basis  of  four  elements  in  n«i. 
business  four  arge  elements  in  our  business,  thS^S^Sk JSL  S 
^br,?^'  inventory  plus  the  value  of  plante  p^hl^^ 
^^nJ'''-  ^"l^^"?P"?ejit  value;  those  fo\u:  eleiSL  W^SK 
Partoe^  gives  the  distribution  of  overhead  ™  OA- 

^Jte  WmFPLE.  Would  you  recommend  a  uniform  rate  for  aU  oen- 

Mr.  CowAN.  I  would. 

Mt.  Whipple.  You  would  say  each  company  should  distrihn*^  \^ 
overhead  m  exactly  the  same  manner?      ^  distribute  its 

Mr.  Cowan.  Yes,  sir. 

Mr.  Whipple  Have  you  any  Canadian  interests  ? 
Mr.  Cowan.  We  have  not. 

Mr  JIoTr™  ■  *"  "»«      I"!  W  «p, 

than  what  now  prevails,  is  that  riihtf  ""omess  as  a  wnole 

Mr.  Cowan.  Yes,  sir. 

£:  CotAN.Tl'uir       ^      ^  -  the  r«x>rdf 

pr^are^^^^^^^  ^  was  what  you  had 

Mr.  Cowan.  Yes,  sir.  It  is  as  follows: 

WILSON  A  CO.  (INC.)-HM5PABTMENTS  OPERATED. 

[Ammed  ««ordtag  to  suggestion  as  to  the  way  we  think  the,  Uioakl  bt 


Class  i. 

Beef  section: 
Beef. 

Beef  cotting. 

Hide. 
Oleo. 

Smoked  beef  ham. 
Beef  caring. 

Tripe. 

Beef  easing. 
Veal  section: 
Veal. 
Galfiskin. 

Mutton  section: 

Mutton. 

Pelt. 

Sheep  casing. 
Fork  section: 
Fresh  pork. 
S.  P.  pork. 
Barrel  pork. 


I 


i— Oontinued. 

Pork  section— Contmued. 

D.  S.  pork. 

P.  S.  lard. 

Smokehouse. 

Boiled  ham. 

Kefined  lard. 

Pigs'  feet 

Hog  casings. 
Miscellaneous : 

Freezer. 

Tongue. 

Tallow. 

Pickle  trimming. 

Offal. 

V%rtillser. 

Sausage. 

Canned  meat. 
Ice. 

Our  Unea 


> 


112 


MAXOfUK  FBOTZT  UMIXATION       lCSA!r-PA€KIHO  IVDU8IB1. 


Box  factory. 

CJooperage. 

Printing. 

€fkt99  S. 


CUuM  9— Omtinued. 


Coffee. 
Animal  food. 
Bedding. 

Glue. 
Soap. 

Curled  hair. 
Animal  oil. 
Tanning. 
Wool  puUery. 
Bntterlne. 


Oondiment  and  preserve. 
Canned  fish,  fruit,  and  vegetables. 
Compound  lard. 

Crude  oil  (must  contain  refined  oils; 

DO  animal  oils). 
Produce  (butter,  eggs,  cheese,  poultry). 

Mr.  Morse.  Is  there  anything  else,  Mr.  Cowan,  you  would  like 
to  8a J  on  the  general  proposition  of  regulation  of  profits  I 

Mr.  CowAK.  Yesk  I  would  like  to  make  this  suggestion  in  con- 
nection with  interest  whidi  is  diargeable  opcmUon,  If  we  borrow 
from  a  bank  $100,000.  the  banker  requests  tli^t  we  leave  20  per 
oeskt  with  him  as  a  balance,  from  which  we  derive  no  benefit,  and 
we  would  like  to  be  allowed  the  interest  on  that  20  per  cent.  There 
is  that  part  of  our  borrowed  money  that  we  derive  no  benefit  from, 
and  we  think  that  we  ought  to  be  allowed  that  in  addition  to  the 
5  per  cent. 

Mr.  Morse.  Do  you  contemplate  doing  any  new  financing? 

Mr.  Cowan.  That  is  a  matter  

Mr.  MoBSE.  Have  you  discussed  any  new  financing  that  you 

propose? 

Mr.  Cowan.  We  have  not  here.   That  is  a  matter  entirely  in  the 
hands  of  our  directors. 
Mr.  Morse.  You  know  nothing  of  any  plans  or  talk  of  a  plan 

of  new  financing? 
Mr.  Cowan.  I  know  nothing  about  it. 

Mr.  Morse.  Is  there  anything  else  that  you  would  like  to  say  ? 
Mr.  Cowan.  Have  I  forgotten  anything,  Mr.  QoM^ 
Mr.  QoFF.  I  dont  think  so. 

Mr.  CbwAN.  I  dmit  think  of  anythinj^  else,  Mr.  Morse. 

Mr.  McHnen.  At  this  point  I  would  like  Mr.  Chase  to  show  you 
a  figuration  that  we  have,  which  he  has  made  from  the  best  sources 
at  hm  command  as  to  what  profits  you  are  allowed  to  make  under 
these  regulations,  and  what  profits  you  will  make  under  these  regu- 
lations. Mr.  Chase  will  explain  the  basis  to  you,  and  I  would 
like  to  have  your  opinion  as  to  whether  you  think  that  would  be 
a  fair  basis,  and  whether  you  will  make  the  profits  that  Mr.  Chase 
has  figured  out? 

Mr.  Chase.  On  the  basis  of  these  figures  that  I  have  prepared, 
Mr.  Cowan,  is  it  your  opinion  that  you  will  be  able  to  make  the 
allowed  profits?  You  have  not  made  it,  I  see,  in  four  months. 
Do  you  think  that  the  balance  of  the  year  will  bring  you  up  to 
this  27  per  cent? 

Mr.  Cowan.  I  think  it  is  problematical,  Mr.  Chase. 

Mr.  Chase.  Not  time  enough  to  really  determine  ? 

Mr.  CbwAN.  No,  sir. 

Mr.  Chase.  You  will  note,  Mr.  Cowan^  that  the  five  companies 
here  on  their  total  percentage  of  profits  allowed  are  not  so  very  far 
off.  Ton  and  Cnmtij  are  a  little  better  off  than  <^e  others,  bdt 
there  are  tranendons  flnctuatioiis  betweoi  the  classes.  Have  you  any 
eaqplanation  for  thati 


MAXIMUM  PROFIT  MMITATIOIT  ON  MEAT-PACKING  INDITSTBT.  118 

✓ 

Mr.  Cowan.  Not  having  seen  the  figures  of  the  others,  it  would 

be  pretty  hard  for  me  to  say. 

Mr.  Ohasb.  Simply  from  your  knowledge  of  what  the  others 
have  in  their  various  classes,  you  know  in  a  general  way  whether 
they  run  tanneries,  fertilizing  plants,  soap  business,  and  so  on? 

Mr.  Cowan.  I  would  not  A^enture  any  comment,  Mr.  Oiase.  It 
would  only  be  a  wild  guess  if  I  did. 

Mr.  Chase.  If  it  should  appear  that  you  can  earn  this  allowed 
profit  of  27  per  cent  during  the  coming  year,  is  that  amount  greater 
or  lesser  than  Wilson  &  Co.  has  earned  heretofore  ? 

Mr.  Cowan.  I  would  say  that  it  is  about  in  line  with  the  last 
year,  we  will  say. 

Mr.  Chase.  In  your  opinion  is  or  is  not  that  a  reasonable  profit 
under  all  the  circumstances? 

Mr.  Cowan.  I  would  say  it  would  be  a  reasonable  profit  based  on 
last  year's  experience,  but  conditions  have  so  changed  within  a  few 
months  that  it  would  be  rather  undesirable  to  venture  a  direct  answer 
to  your  question  for  this  year. 

Mr.  Chase.  Mr.  Cowan,  do  you  think  that  these  figures  based  on 
four  months'  operation  under  the  regulation  are  really  of  an^  sig- 
nificance to  present  to  tibe  Presid^t's  meat  oommiflmim  as  an  index 
of  allowed  profits  or  actual  earnings! 

Mr.  Cowan.  Yes;  I  think  they  are. 

Mr.  Chase.  As  an  index? 

Mr.  Cowan.  I  think  so. 

Mr.  Chase.  That  is  all. 

Mr.  Morse.  Now,  Mr.  Cowan,  your  business  has  increased  to  quite 
an  extent  over  what  it  was  in  1914  and  1915,  along  there;  in  fact,  it 

has  doubled,  hasn't  it,  very  nearly? 
Mr.  Cowan.  No;  it  has  not  doubled. 

Mr.  Morse.  You  have  had  a  considerable  increase,  have  you  not? 

Mr.  Cowan.  We  have  had  a  considerable  increase. 

Mr.  Morse.  You  had  to  spend  considerable  money  in  making  ad- 
ditions to  your  plant,  have  you  not,  in  order  to  take  care  of  this  in- 
creased business? 

Mr.  Cowan.  We  have. 

Mr.  MoBSE.  And  in  doing  that  you  have  not  always  been  able  to 
place  your  units  in  the  exact  position  where  you  could  operate  as 
economically  as  you  would  if  you  did  not  have  tiirust  upon  you  this 
enormous  volume  of  business  all  of  a  sudden? 

Mr.  Cowan.  That  is  true. 

Mr.  MoBSE.  So  your  operating  expenses  have  increased  and  will 
increase  in  proportion  to  the  more  business  you  do  and  the  more 
additioi^  you  have  got  to  make ;  in  other  words,  all  the  time  you  are 
becoming  less  efficient  as  far  as  operation  is  concerned  and  hence 
more  costly ;  is  that  true  ? 

Mr.  Cowan.  In  answering  that  question  let  me  say  this:  That  the 
larger  percentage  of  our  increase  in  business  has  been  in  order  to 
supply  the  demands  of  the  United  States  Government  and  our  allied 
Governments  for  war  supplies. 

Mr.  Morse.  I  don't  think  there  is  any  dispute  on  that  question. 
We  all  recognize  that. 

13888S—S.  Dqc.  110, 66-1  8 


114       MAXIMUM  PBOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY. 


Mr.  Cowan.  And  those  requirements  have  been  thrust  upon  us, 
wiiich  we  have  had  to  necessarily  meet  in  a  hurry. 

Mr.  Morse.  You  have  done  the  best  you  could  'i 

Mr.  Cowan.  We  have  been  forced  to  increase  in  facilities  under 
conditions  which  ordinarily  would  have  been  less  expensive. 

Mr.  Morse.  But  on  account  of  methods,  you  have  to  spend  more 
money  in  operation  than  if  you  had  a  gradual  increase  where  you 
oolild  provide  for  it  and  get  more  nmifi  of  your  plant  where  they 
would  he  more  workable  as  a  whole? 

Mr.  Ck>wAN.  That  is  true. 

Mr.  MossE.  I  presume  that  that  condition  will  increase  right 

along  as  your  busmess  increases! 
Mr.  Cowan.  I  expect  so. 
Mr.  Morse.  Yes. 

(Whereupon  at  3.15  o'clock  p.  m.  a  recess  was  taken  until  4  o'clock 
p.  m.) 

AFTER  RECESS. 

Present  on  behalf  of  the  Federal  Trade  Commission:  Stuart 
Chase,  Esq.,  Samuel  W.  Tator,  Esq.,  Perley  Morse  &  Co.,  certified 
public  accountants,  New  York,  represented  by  Perley  Morse  and 
P.  S.  Whipple. 

Present  on  behalf  of  the  Cudahy  Packing  Co.:  E.  A.  Cudahy, 
president,  and  A.  W.  Anderson,  secretary. 

E.  A.  Cudahy  was  called  as  a  witness  and,  beilig  examined,  testified 
as  follows: 

Mr.  MoBBS.  Mr.  Cudahy,  you  are  familiar  with  the  United  States 
Food  Administration  meat  division  rules  and  leffulaticms  that  have 
b^n  in  effect  since  November  1, 1917,  are  you  not! 

Mr.  Cudahy.  I  am  generally,  yes,  sir.  All  of  the  details  of  them, 
of  ooQise,  I  might  have  to  rehearse  some  of  them,  but  in  a  g^ieral 
way. 

Mr.  Morse.  Generally,  do  you  know  what  the  provisions  are, 
and  what  these  regulati<ms  are  supposed  to  try  and  accomplish? 

Mr.  CuDAiiY.  Yes. 

Mr.  Morse.  Have  you  any  constructive  criticism  to  offer  regard- 
ing these  regulations?  Is  there  any  way  that  you  think  they  could 
be  improved  that  would  make  them  better  and  more  workable  both 
from  your  own  standpoint  and  that  of  the  Government? 

Mr.  CtJDAHY.  I  should  say  it  is  the  first  attempt  that  is  made 
at  regulating  the  meat  packers,  and  I  think  that  it  covers  the  sit- 
uation fairly.  They  have  tried  to  accomplish  the  stimulation  of 
raising  animals,  also  to  keeping  it  within  reason,  and  also  limiting 
their  profits  to  a  very  small  percentage.  So  far  as  they  have  gone, 
I  tiiink  they  have  done  very  well.  There  is  mat  uncertainty 
about  them,  though.  We  may  make  a  certain  pront,  but  to-day  we 
donH;  know  what  our  profit  is  ^ing  to  be  the  next  six  months.  It 
idl  depends.  They  have  the  pnce-making  power — they  have  taken 
it  anyway — so  tiiere  is  that  great  uncertainty  about  it,  and  we  dont 
know  just  where  we  stand. 

Mr.  Morse.  In  these  regulaticms  the  business  is  divided  into  three 
classes,  namely,  1,  2,  and  31 

Mr.  CunAHT.  Yes. 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY. 


115 


Mr.  Morse.  Have  you  any  suggestion  to  make  as  to  the  justice  of 
this  classification — that  is,  of  the  business  that  comes  in  these  classi- 
fications should  there  be  a  general  switch  of  the  subdivision  in  any 
class  to  another  class. 

Mr.  Cudahy.  I  think  it  is  my  understanding — don't  know 
wh^her  it  covers  the  entire  planlr--but  it  was  my  understanding  it 
was  to  tidce  the  branches  of  uie  business  that  did  not  have  21  to  24 
per  cent  of  material  animal  products  in  them  would  be  clasdfied  as 
class  C.    So  that  if  carried  out  I  think  it  would  be  perfectly  fair. 

Mr.  M(»SE.  You  had  no  suggestion  for  yourself  of  these  classes,  for 
instance ;  some  of  the  business  designated  in  dass  1  should  be  timns- 
f erred  to  class  2  or  3f 

Mr.  Cudahy.  Yes;  we  have. 

Mr.  Morse.  Some  in  class  2  be  put  in  class  1  or  class  3  ? 

Mr.  Cudahy.  We  have  some  suggestions  on  that  line.  For  in- 
stance, take  as  one  our  Old  Dutch  Cleanser ;  that  has  been  put  in  class 
3.  We  are  in  the  glycerin  business,  we  are  refiners  of  glycerin; 
we  make  a  very  small  percentage  of  crude ;  we  buy  it  on  the  outside ; 
we  import  a  large  (juantity  of  it  now  from  Habana,  South  America, 
and  Mexico;  there  is  very  little  of  our  own  product  in  it;  therefore 
we  think  it  ought  to  be  class  3 ;  and  our  soap  business  has  a  very  small 
percentage  of  animal  fat,  and  we  think  that  ought  to  be  in  class  C. 

1  think  &at  is  all,  isn't  it  ? 

Mr.  Andkrson.  We  have  made  application  to  the  Food  Adminis- 
tration for  the  removal  of  everything  which  is  now  in  class  2  to 
class  3,  and  stated  our  reasons.  We  were  led  to  believe  that  that 
change  would  be  made,  but  it  has  been  slow  in  coming.  We  have 
had  one  or  two  departn^ts  removed  from  class  2  into  class  3.  One — 
our  Old  Dutch  Cleanser — which  has  no  connection  at  all  with  pad^- 
ing-house  products,  has  been  put  into  class  S.  We  hftve  had  produce 
put  into  class  3. 

Mr.  Morse.  What  do  you  mean  by  produce? 

Mr.  Anderson.  Butter,  cheese,  and  eggs. 

Mr.  Cudahy.  Is  that  in  class  3? 

Mr.  Anderson.  That  is  in  class  3 ;  yes. 

Mr.  Morse.  You  mean  animal  butter,  not  butterine  or 

Mr.  Anderson.  Not  butterine;  no. 

Mr.  Cudahy.  We  do  not  manufacture  butterine. 

Mr.  Morse.  Butter  from  cream? 

Mr.  Anderson.  Yes. 

Mr.  MossE.  Made  from  milk  or  cream! 

Mr.  Akdekson.  Yes;  regular  butter,  cheese,  eggs,  and  some  dressed 
poultry.  That  has  been  removed  into  class  3,  but  as  Mr,  Cudahy 
stated,  we  have  a  j^lycerine  business.  Now,  the  proportion  of  animal 
fat  that  is  used  m  the  extraction  of  this  ^jcemm  is  infinitesimal 
with  us.  Probably  not  more  than  2  per  cent  of  tiie  entire  glycmne 
that  we  sell  is  obtained  from  animal  fat  We  use  up  our  own  crude 
glycerine  from  our  own  soap  works,  most  of  which  is  obtained 
from  vegetable  fats,  but  in  addition  to  that,  as  Mr.  Cudahy  stated 
there,  we  obtain  crude  glycerine  from  all  possible  sources,  refine  that, 
and  take  the  total  glycerine  that  we  turn  out — there  is  not  more  than 

2  per  cent  at  the  outside,  I  think  1  and  a  decimal,  some  fraction,  ob- 
tamed  from  animal  fat,  that  we  know  of*  so  we  contend  that  that 
should  be  in  class  3. 


116       MAXIMUM  PROFIT  LIMITATION  OH  MBAT-P^OKIHG  IHDU8TBT« 


Mr.  Morse.  What  percentage  of  your  bosiiieBs  is  your  g^yoerine 

product?  ,      •     T  1  ij 

Mr.  Andbrson.  Well,  not  more  at  the  present  time  than  I  should 
say  one-half  of  1  per  cent  I  don't  think  we  sell  more  than  a  million 
dollars'  worth  of  glycerine  a  year.  Our  sales  are  now  running 
$250,000,000  a  year,  so  it  is  a  very  small  portion. 

Mr.  CiJDAHT.  I  think  it  is  more  than  a  million  dollars. 

Mr.  Aki»k80N.  Here  for  nine  weeks  we  have  sales  of  $804,000. 
That  would  be  runnmg  on  toward  $2,000,000,  but  it  may  not  hold  up 
that  way  all  the  year  round. 

Mr.  Morse.  Are  there  any  other  suggestions  for  changes  from  one 
class  of  business  to  another  class?  . 

Mr.  CuDAHY.  The  soap  business;  that  is  a  large  business  with  us, 
about  the  same  size  as  the  glycerin,  and  we  manufacture  most  of  our 
soaps  out  of  vegetable  fats;  we  have  a  little  animal  fat,  but  the  bulk 
of  it  is  vegetable  fats.  We  have  made  application  and  stated  ]ust 
the  percentage  of  animal  fats  used,  and  we  have  not  had  a  reply  to 

that  application  yet.  .   i ,  • 

Mr.  Morse.  But  the  animal  fats  that  are  suitable  for  soap  pur- 
poses, produced  by  you,  you  use  them  aU  up  in  your  soap,  do  you 

not?  1.  11 

Mr.  Anderson.  We  may  not  use  them  all  

Mr.  CuDAiiY.  We  use  a  very  small  percentage  of  our  own.  ^ 

Mr.  Morse.  I  mean  the  fats  that  your  plant  prodncee;  those  tliat 

are  suitable  for  soap,  you  use  it  all  yourselyes? 
Mr.  Cotaht.  We  do  not  use  10  per  eont  of  it 
Mr.  MoBSB.  What!  ^  .    ,^  ^  „ 

Mr.  Cotahy.  We  do  not  use  10  per  cent,  I  should  guess.  We  sell 

90  per  cent  on  the  market. 
Mr.  Morsb.  You  sell  90  per  cent  on  the  market! 
Mr.  CuDAHY.  Yes,  sir. 

Mr.  Morse.  And  you  sell  it  to  the  other  soap  manufacturers? 

Mr.  CuDAHY.  We  sell  it  to  Procter  &  Gamble,  and  anybody  else 
that  will  buy  it  from  us. 

Mr.  MoRSE.  Are  there  any  other  departments? 

Mr.  Anderson.  We  have  a  curled-hair  department  and  a  glue 
department,  both  of  which  we  have  made  application  to  have  trans- 
f erred. 

Mr.  Morse.  ^Vhat  is  the  percentage  of  your  glue  business  in  respect 
to  vour  whole  business  ?  %  %  m 

Mr.  Anderson.  I  think  this  nine  weeks  we  have  only  had  sales  of 
$47,000  worth  of  clue.  That  business  raries. 

Mr.  CuDAHY.  The  sales  will  be  about  $700,000  in  a  year. 

Mr.  Anderson.  It  would  be  under  a  Bodllion,  anyway. 

Mr.  CtroAHT.  That  is  «bout  it. 

Mr.  Akdkrbok.  So  you  can  figure  a  million  dollars. 

Mr.  Morsb.  How  about  your  hair  ? 

Mr.  Anderson.  That  is  another  department.   We  take  this  hair 

and  we  carry  it  through  to  make  mattresses  out  of  it, 
Mr.  Morse.  You  have  a  mattress  factory  ? 
Mr.  Anderson.  We  have  a  mattress  factory. 

Mr.  Morse.  Do  you  use  in  your  manufacture  of  glue  all  of  the 
t»oduds  that  you  extract  through  your  packing  businessi 


ICAZnCUM  PBOFIT  LDOTATIOH  OV  UMMX^'BrnOMQ  DfOTTOIT.  117 


AjffDiDKSON  Y'es,  sir. 
Mr!  Morse.  Or  do  you  sell  some  of  the  material  to  other  people? 

Mr.  CuDAHY.  No;  we  use  it  alL 
Mr.  Morse.  You  use  it  all? 

Mr.  CuDAHY.  Yes;  we  use  it  all. 

Mr.  Morse.  Do  you  buy  any  of  the  products  necessary  to  manufac- 
ture glue  from  other  packers  or  outside? 
Mr.  CuDAHY.  No,  sir. 
Mr.  Morse.  For  your  own  use  ? 

Mr.  CuDAHY.  No ;  we  do  not  make  any  purchases  of  glue  stock. 
Mr!  Morse.  In  regard  to  hair  in  that  mattress  factory,  do  you  use 
all  of  your  own  product? 
Mr.  Anderson.  No. 

Mr.  Morse.  Do  you  buy  any  on  the  outside! 

Mr.  Anderson.  We  have  bought  considerable  on  the  outside. 

Mr!  Morse.  What  percentage  do  you  think  you  buy  on  the  outside! 

Mr.  Cudahy.  In  the  first  place,  the  mattresses  are  not  made  alto- 
gether out  of  hog  hair.  They  use,  I  think,  some  hair  that  is  bought 
from  South  America. 

Mr.  Morse.  Well,  the  fact  remains  that  all  the  hair  that  you  ac- 
cumulate in  your  own  business  you  use,  and  then  joa  supplement 
that  by  any  other  hair  bought  from  other  sources? 

Mr.  Cotaht.  We  do  not  use  5  per  cent  of  the  hair  that  we  pro- 
duce, in  mattresses. 

Mr.  Morse.  You  sell  95  per  cent? 

Mr.  Cudahy.  We  sell  95  per  cent  of  manufactured  hair  to  automo- 
bile manufacturers,  mattress  makers,  around  throughout  the  country 
for  different  uses. 

Mr.  Morse.  That  which  is  of  a  better  quality  you  sell  to  auto- 
mobile manufacturers  and  other  concerns  to  put  in  mattresses? 

Mr.  Cudahy.  No;  there  isn't  any  two  of  them  that  buy  the  same 

^^Mr.  Morse.  As  a  general  proposition  you  use  inferior  grades  of 
hair  in  matt^resses? 

Mr.  Cudahy.  No;  we  use  the  best. 

Mr.  MoRSE.  You  use  a  different  class  of  hair,  I  say,  for  the  manu- 
facture of  mattresses  from  what  you  sell  to  me  automobile  manu- 

f  acturers  ? 

Mr.  Cudahy.  No  ;  we  do  not  We  use  just  as  good  hair  for  mat- 
tresses as  we  sell ;  in  f  act^  all  hog  hSrir  is  all  about  the  same.  The 
only  distinction  in  hog  hair  is  one  is  winter  and  the  oilier  is  summer. 

Mr.  Morse.  Those  two  grades? 

Mr.  Cudahy.  That  is  flie  only  distincti(m  there  is. 

Mr.  Morse.  Are  there  any  otner  departments  that  you  would 
like  to  see  changed  around  between  these  three  classes  ? 

Mr.  Anderson.  There  is  what  we  t^m  animal  food.  That  is  an- 
other small  department.  We  prepare  the  stock  feeds  from  tankage, 
and  we  have  a^o  made  application  for  that  to  be  removed  to  class  3. 

Mr.  M<«SE.  What  proportion  of  your  business  are  these  animal 
feeds? 

Mr.  Cudahy.  Very,  very  small;  3,000  tons. 
Mr/  Anderson.  That  is  a  very  small  proportion  of  the  entire  busi- 
;? 


118       MAXIMUM  PROFIT  LIMITATION  ON*  MEAT-PAOKINQ  INDUSTRY. 


Mr.  CuDAHY.  Yes. 

Mr.  Anderson.  It  would  not  run  to  much  more  than  1  per  cent 
of  the  entire  business. 

Mr.  McMttOB,  Are  there  any  other  departments? 

Mr.  Andbrson.  We  make  pepsin  and  extract  of  beef.  We  figure 
that  those  should  be  transferred  to  No.  8,  for  the  reason  that  they 
hftTe  nothing  in  common  wiUi  the  ordinary  packinff-houae  depart- 
ments. It  is  stuff  thftt  has  got  to  be  well  adTerdsed  and  sold  by  % 
specialty  force. 

Mr.  Morse.  What  is  the  ^neral  reason  why  you  think  these  trans- 
fers should  be  made  from  class  2  into  class  8  ? 

Mr.  Anderson.  Take  extract,  for  instance,  that  is  recovered  from 
soup,  secured  in  the  cooking  of  meats.  That  is  practically  found 
money;  that  stuff  would  have  gone  into  the  tanks  if  we  did  not 
have  that  extract  department.  It  has  got  very  little  value  as  it 
comes  as  soup,  but  the  labor  of  concentrating  it,  getting  it  down 
to  the  proper  stage  of  sale  as  an  extract,  and  the  expense  of  put- 
ting it  up  in  a  high-grade  package  and  packing  it.  making  it 
presentable,  and  then  advertising  it  and  selling  it,  takes  it 
altogether  apart  from  the  animal  products  which  it  came  f ix)m  origi- 
nally. It  is  stuff  that  is  worth  from  a  dollar  to  two  dollars  or  more 
a  Doiind  when  we  market  it. 

Mr.  CuDAHT.  I  think  some  things  like  the  soap  business,  the  gly- 
cerin business,  and  also  the  Dutch  Clenser  business,  should  be  treated 
differently,  because  it  hasn't  any  animal  product  in  it. 

Mr.  Mouse.  May  I  ask  what  is  the  basis  of  Old  Dutch  Cleanse! 

Mr.  CuDAHY.  About  85  per  cent  mineraL 

Mr.  Morse.  What  is  the  rest? 

Mr.  CuDAHT.  Soap,  made  from  vegetable  oil ;  but  all  these  different 
businesses  that  we  are  in,  we  have  to  go  in  competition  with  soap 
makers,  we  have  to  go  in  competition  with  cleansers,  and  our  com- 
petition is  outside  of  the  packing  business  altogether,  it  is  in  another 

line  of  business  altogether. 

Mr.  MoRSE.  Then  as  I  understand  it,  Mr.  Cudahy,  you  feel  that 
these  other  lines  of  business  outside  of  the  packing  business,  mak- 
ing the  same  kind  of  a  product  as  you  do,  should  be  regulated  if  you 
are  regulated? 

Mr.  Cudahy.  We  ought  to  be  on  the  same  basis  that  they  are. 
If  we  are  manufacturing  soap,  why  we  ought  to  be  in  the  same 
basis,  because  even  though  we  take  our  product,  if  we  have  any 
of  our  own  products  from  our  houses,  it  has  got  to  be  charged  up 
to  the  soap  factory  at  the  market  price.  Our  selling  expenses  and 
our  overhead  expenses  have  got  to  be  correctly  charged  up  to  that 
department,  and  we  want  to  know  where  we  stand  in  regard  to  profit 
in  that  particular  department. 

Mr.  Morse.  But  without  doubt  you  can  omipete  with  any  outside 
concern — that  is,  a  concern  outside  of  the  packing  industry — ^where 
yon  use  all  of  vour  own  by-products  in  the  article  that  you  manufac- 
ture, can  you? 

Mr.  Cudahy.  Yes. 

Mr.  MoRSi.  You  have  no  fear  of  outside  ccmipetition  in  cases  of 
that  sort? 
Mr.  CuBAHY.  In  soap,  do  you  mean  I 


MAXIMUM  PROFIT  LIMITATION  ON  ICBAT-PACKING  INDUSTRY.  119 

Mir.  Morse.  I  did  not  specify  soap.  I  want  any  case  where  you 
use  up  all  of  your  own  commodities,  your  own  by-products  in  mak- 
ing your  artide,  you  have  no  fear  of  any  competition  on  the  outeode? 

Mr.  Cuni^r.  «o ;  we  are  able  to  compete  with  them. 

Mr.  MoBSE.  Even  if  you  were  regulated  in  regard  to  the  profits? 

Mr.  CuDAHT.  You  mean  if  the  soap  business  was  regulated  on  the 
same  basis? 

Mr.  MoBSE.  I  did  not  mention  the  soap  business  in  that  connection. 
For  instance,  you  take  the  by-products  that  you  use  entirely  yourself 
in  making  some  article  that  you  manufacture,  like  glue,  or  something 
of  that  kind,  or  butterine,  if  you  make  it? 

Mr.  Cudahy.  We  do  not  make  butterine. 

Mr.  Morse.  You  would  not  fear  competition  there,  would  you, 
where  you  use  all  the  products  yourself  from  your  own  processes  ? 

Mr.  Cudahy.  No;  where  we  put  in  our  products  into  any  depart- 
ment of  that  kind,  we  put  that  in  at  the  market  price,  and  therefore 
we  would  be  able  to  compete  with  any  outsider. 

Mr.  MoBSE.  Have  you  any  more  suggestions  to  make  on  diangest 

Mr.  Chase.  May  I  ask  a  question! 

Mr.  Morse.  Certainly. 

Mr.  Chase.  About  the  beef  extract.  Whom  do  you  sdl  that  to, 
Mr.  Anderson,  in  the  beginning? 

Mr.  Anderson.  I  could  not  answer  that  question. 

Mr.  CuDAHT.  We  sell  quite  a  little  of  it  in  small  packages.  It  goes 
to  the  grocer  and  the  distributor,  but  for  the  last — this  year,  anyway, 
we  have  sold  most  of  it  in  a  wholesale  way.  We  sell  it  to  England  and 
we  sold  some  to  go  to  Italy  in  bulk — that  is  bulk  goods. 

Mr.  Chase.  Would  it  be  used  for  war  purposes,  to  go  to  hospitals'? 

Mr.  Cudahy.  Yes;  where  that  is  manufactured,  it  us  put  up  in 
small  packages. 

Mr.  Morse.  Mr.  Cudahy,  your  balance  sheet  as  published  by  you 
for  the  end  of  your  fiscal  year  1917  shows  net  fixed  assets  of  a  little 
over  $14,000,000  ? 

Mr.  Cudahy.  Fixed  assets;  yes. 

Mr.  Morse.  That  is,  by  fix^  assd»  I  mean  your  plant  and  machin- 
ery and  real  estate  and  the  like. 
Mr,  Cudahy.  Yes. 

Mr.  Morse.  Now,  there  is  no  doubt  but  what  that  is  your  book 
r$Xne — that  is,  the  value  shown  on  vour  books,  but  do  you  ocmader  It 
to  be  the  real  value  of  those  assets  ? 

Mr.  Cudahy.  I  think  it  is  much  below  the  real  value. 

Mr.  MoRSB.  On  what  basis? 

Mr.  Cudahy.  It  would  be  entirely  below  on  the  present  basis. 

Mr.  Morse.  By  present  basis  you  mean  the  present  value  of  19181 

Mr.  Cudahy.  Yes. 

Mr.  Morse.  How  was  this  valuation  determined;  how  was  it  ar- 
rived at? 

Mr.  Anderson.  It  was  arrived  at  mainly  by  cost;  in  some  cases 
by  an  appraisal  made  by  the  American  Appraisal  Co.  in  1907. 

Mr.  Morse.  Did  the  American  Appraisal  Co.  make  an  appraisal 
of  your  plant  in  1907,  by  plant  meaning,  of  course,  the  real  estate, 
buildings,  and  machinery? 

Mr.  Anderson.  Yes,  sir. 


120       MAXIMUM  PROFIT.  LIMITATION  ON  MEAT-PAOKINO  INDUSTBIT. 

Ife  MoMk  They  made  a  complete  appraisal,  and  the  amount  of 
that  appraisal  was  set  up  on  your  books  at  that  time? 
Mr.  Ain»B80N.  It  was  set  up  subsequently. 
Mr.  Mxsmm.  When  was  that:  what  date? 
Mr.  Akdebsok.  Some  tiine  in  1916. 
Mr.  MoiflB.  For  the  appraisal  in  1917t 
Mr.  Andkbson.  In  1907. 

Mr.  MoKSB.  You  had  this  report  of  theirs,  and  when  you  saw  fiL 
which  was  in  1916,  you  set  the  value  up  on  your  books ;  is  that  right! 
Mr.  Anderson.  Yes.   The  reason  for  that  was  this:  We  did  not 

intend  at  first  to  set  it  up.  We  borrowed  some  money  and  issued  a 
mortgage  on  our  plants,  and  the  auditors  at  that  tune  furnished 
the  trustee  under  the  mortgage  with  the  values  as  appraised,  and 
we  ran  along  that  way,  having  to  keep  a  record  of  everything  to 
the  trustee,  and  when  we  had  to  borrow  some  more  money  in  1915, 
I  think  it  was,  we  got  our  books  in  line  with  the  appraisal  on  the 
recommendation  of  our  auditors. 

Mr.  Morse.  In  setting  up  this  $14,000,000  at  that  time  did  vou 
take  into  consideration  that  between  1907  and  1916  there  was  con- 
siderable depreciation  ? 

Mr.  Akdebsok.  We  did.  As  a  matter  of  fact,  in  1908,  I  think, 
the  audit  was  made.  There  was  a  difference  of  approximately 
2,000,000  in  the  figure.  When  we  made  the  adjustment  in  1916  we 
had  only  a  difference  of  about  $700,000;  m  fact,  the  adiustment 
in ^ir  book  figure  and  the  appraisal  figure  merely  increased  $730,000. 

Mr.  Morse.  What  do  I  understand,  then,  was  the  value  of  the 
appraisal  in  1907  as  arrived  at  by  the  American  Appraisal  Co.! 

Mr.  Akdersok.  The  exact  figure  of  that  appraisal! 

Mr.  Morse.  Yes ;  or  approximate ;  I  don't  care. 

Mr.  Anderson.  It  was  about  $2^000,000  more  than  our  books 
showed  at  that  time. 

Mr.  Morse.  What  I  want  to  arrive  at  is,  what  is  the  difference 
between  the  book  value  now,  as  shown  by  your  books,  and  tiie  , 
amount  of  this  appraisal  ? 

Mr.  Andebsok.  Allowing  for  proper  depreciation  from  1907  down 

to  date? 

Mr.  Morse.  What  depreciation  did  you  take  there? 

Mr.  Anderson.  The  rates  were  2  per  cent  on  buildings  and  I 

thing  3J  per  cent  on  machinery.  The  rates  were  given  us  by  

Mr.  MoKSB.  Per  annum? 
Mr.  Akdsmok.  Yes. 

Mr.  MoiiSB.  Then  the  rates  were  given  you  by  whom? 
Mr.  Andeumk.  By  Price-Waterhouse.  who  made  the  data,  and 
file  adjusting  entry  was  made  by  Ar^ur  Young  &  Co.,  so  that 

we  have  

Mr.  Morse.  I  notice  here  the  assets  in  your  inventory  at  the  end 
of  your  fiscal  year  1917  amount  to  about  $^,000,000.  On  what 
basis  are  those  inventories  computed  ? 

Mr.  CuDAHY.  The  supplies  were  figured  at  cost  and  the  product 
was  figured  at  what  we  %ured  that  we  would  be  able  to  realiae 
on  it. 

Mr.  Morse.  That  is,  at  the  market? 

Mr.  CuDAHY.  Well,  it  is  sometimes  hard  to  determine  just  ex- 
actly what  the  market  is.  Those  goods  are  not  sold  sometimes. 


MAXIMUM  PBOFIT  LIMITATION  ON  MEAT-PAOKINQ  INDUSTRY.  121 


Mr.  Morse.  You  being  familiar  with  the  business  and  knowing 
conditions  throughout  the  country,  you  placed  the  price  on  those 
which  you  thou^t  that  you  could  realize  on,  is  that  it? 

Mr.  CuDAHT.  That  is  it.  The  market  value  is  uncertain.  We  have 
always  taken  what  we  considered  a  very  conservative  inv^tor;^. 
We  do  not  want  to  go  into  the  next  year  ^ing  any  possible  loss. 
For  that  reason  we  have  always  taken  an  inventory  that  we  tldnk 
is  on  a  conservative  basis.  Sometimes  it  might  mow  over  what 
might  be  realized,  sometimes  it  might  be  a  gmat  deal  under,  buit  I 
think  our  inventory  im  last  year  was  on  mat  I  consider  a  very 
conservative  basis. 

Mr.  Morse.  In  other  words,  Mr.  Cudahy,  there  is  a  poesibililj 
there  of  there  being  a  profit  or  a  loss  in  that  inventory! 

Mr.  Cudahy.  Yes,  sir, 

Mr.  Morse.  Whichever  way  you  happen  to  figure  it! 

Mr.  Cudahy.  Yes. 

Mr.  Morse.  That  is,  if  jon  figure  it  at  less  than  what  you  finally 
sell  it  for,  or  less  than  the  inventory  cost,  it  is  loss? 
Mr.  Anderson.  Yes. 

Mr.  Morse.  If  you  sell  it  for  more  than  what  you  figured  on  or 
above  cost  you  have  a  profit  there? 
Mr.  Anderson.  Yes. 
Mr.  Cudahy.  Yes. 
Mr.  MoBSB.  That  is  the  proposition. 

Mr.  CuDAHT.  I  think  that  we  had  a  considerable  profit  in  our  last 
year's  inventory. 

Mr.  Morse.  Isn't  this  the  fact  in  the  meat-paekinff  business,  in 
your  slaughtering  of  animals,  there  may  be  a  demand  for  fresh  meat 
or  something,  and  you  will  use  the  product  the  demand  is  for,  and 
you  will  accumulate  a  lot  of  by-products,  we  will  call  them,  and  ycra 
will  have  no  market  for  them  and  you  luive  to  keep  than  smnetimes 
maybe  for  a  week,  or  a  month,  or  six  months,  or  a  year,  or  longer 
until  the  market  is  so  that  you  can  work  those  by-products  up  into 
some  commodity  and  sell  them  and  secure  your  profit ;  isn't  that  true  ? 

Mr.  Cudahy.  No;  not  in  our  case.  We  scarcely  ever  accumulate 
any  line  of  by-products.  We  may  sometimes  have  to  carry  some  glue 
if  there  is  no  market  for  glue ;  we  may  have  to  carry  some  hair,  but 
our  accumulation  of  stock  is  principally  of  the  main  products — ham, 
bacon,  dry  salt  meats,  canned  goods. 

Mr.  Morse.  You  will  accumulate  products  of  that  kind? 

Mr.  CuDAHT.  Yes. 

Mr.  MoBSB.  lliat  there  is  not  a  good  market  for  you  hold  them 
oyvr  lor  a  better  market! 

Mr.  OonAinr.  No;  we  have  to  keep  them  in  order  to  cure.  It 
takes  90  days  to  turn  a  ham  out  and  get  your  money  for  it — opt 
exactly  90  days — it  takes  75  days,  varies  from  60  to  75  days,  accord- 
ing to  the  size  of  it;  and  dry  salt  meat,  30  days,  40  days.  Some- 
times there  is  no  demand  for  some  particular  cut,  and  we  might  have 
to  carry  that  a  little  longer,  but  it  is  not  with  a  view  of  speculating. 

Mr.  Morse.  I  did  not  mean  it  in  that  way.  I  am  talking  frmn  an 
economic  standpoint  purely  now. 

Mr.  Cudahy.  I  thought  maybe  you  thought  we  would  fi^-^ifiHilnte 
products  for  the  purpose  of  speculating. 


123     KAzntinc  vaonr  vaaxtxHoi  oh  wut-paoking  indusiby. 


Mr  Mo«8E.  No;  get  Out  out  of  your  mind.  I  simply  thought 
that  things  of  that  kind  might  be  neeemry  i.  a  busmL  ofX 
character  that  you  conduct^  ""o^wo  ui  uio 

Mr.  CuDAi.T  Of  course,  if  then  is  not  a  mie  for  your  product, 
you  can  not  sell  it  at  all,  at  any  price.  i'lwuvi, 

demand**"^  have  to  faep  it  until  th«w  i»  s  market,  or  a 

Mr.  CuDAHT.  Until  we  can  find  a  customer. 

Mr.  Morse.  That  is  what  I  mean. 

Mr.  CuDAHT.  Yes,  sir;  until  we  can  find  a  customer. 

M  perfectly  legitimate. 

Mr  %U^^i  ^-  '^'^  T\  ^^^C]""'**®        by-products,  though. 
.n7n.^«S^\  Cudafiy,  isn't  it  true  that 

f^JLftS? ^f^ifSr**  ""^y  not  absolutely  true,  as 

SoS^rtf  $1^*"  a  matter  of  necessity,  because  the  inventory 
controls  the  profit  or  loss,  and  you  in  ght  have  profit  or  loss  in 

TthllS^'  ""lyo-jr"  1"*  ^^"^ yoS  finally  rla  zed 
tPki  !n^*-     T that  is  in  that  inventory  ?  You  might 
or  vrnV^iS^r  "i*  *^  "nw-ket;  you  might  get  less  than  the  market, 
iX      ^  *  ^*  more;  Mnt  tiiat  tmef 

stiS;,^C"f\J!^l''  «^""y;  «f  J*  be  tme  in  some  in- 

SaHze  on'^hem.*^  e  rub  a«  «kA  that  we 

i,  rt.V«-**TS  '  saying  that  they  are  not,  but  what  I  say 

f  ;=  w    ^''fi        '^''J^^  ^       ^'n'  but  when^you  set  a  pr^ 

Mr.  CUDAHT.  Of  course,  we  have  to  realize  on  the  product  and 
there  IS  some  uncertainty  about  what  we  have  in  stocVbut  I  tuSk 
Ifc^  Anderson  will  bear  me  out  that  we  come  out  about  OTeHn 

£ri?"oiS*HSu!SLf*T  t™"sfer  a  product 

nri^  ^  f!f2^^  another,  when  you  transfer  at  the  market 
price  you  get  the  best  market  price,  that  is  the  highest  market  pri^ 

conditions  that  we  have  tatted  over,  there  may  be  a  profit,  there  mav 

other  concerns  engaged  in  that  business  just  as  if  we  dM?^  have 
any  other  busmess  and  that  business  is  only  subW  to  a^e  oon^! 

Mr  Morse.  Coming  back  for  a  moment  to  the  valttatiiML  I  think 
you  stated  that  you  consider  the  present  value  of  yourrf^t  jnSS? 
than  that  shown  on  your  books.  F*»"*  grower 

Mr.  CuDAHY.  Yes,  sir. 

Ifc  Morse.  Has  that  been  discussed  pretty  generally  amomr  your 
olio|OT  and  do  you  think  you  ought  to  write  that  up  to  its  pr^t 

v^hl!'  I  """^^^  probably  to  the  extttsme 

Mr'  SSJi.^       ''S^T       "i^^^  ^^^^^  ^^^^  ^hey  ought  toTS^ 
Mr.  Mc»8B.  How  much  do  you  think  they  are  below  now  I 


1C4ZUCUM  FBOllT  UMIXAXION  ON  MSAT-PAOKOTa  INDUSmT.  123 

Mr.  CuDAHY.  We  have  not  had  any  appraisement,  or  at  least,  we 
have  had  an  appraisement  on  our  Wichita  property,  but  we  have  not 
got  the  result  of  that,  have  we  ^ 

Mr.  Anderson.  No. 

Mr.  Ci  JDAHY.  It  would  be  pretty  hard  for  me  to  make  an  estimate 
on  anything  accurately.  It  would  only  have  to  be  just  a  guess. 

Mr.  Morse.  Are  you  considering  making  application  to  competent 
authorities  to  make  that  increase  at  the  present  time! 

Mt,  CimAHT.  I  am. 

Mr.  Morse.  Tou  have  not  done  it? 

Mr.  CuDAHT.  I  have  nxit  done  it  yet;  no,  sir. 

Mr.  McttSB.  Have  you  any  fixed  sum  in  your  mind  that  you  think 
you  ou^t  to  increase  the  value? 

Mr.^  OoDAHT.  No ;  that  is,  it  would  only  be  a  guess  on  my  part  I 
can  give  you  the  valuation  when  we  get  it  of  the  Wichita  property, 
if  you  wish. 

Mr.  Morse.  It  would  be  too  late  for  the  purposes  of  this  investiga- 
tion.  We  have  to  report  in  Washington  <m  June  21.   How  soon  can 

you  have  it? 

Mr.  Anderson.  We  can  have  it  by  the  20th. 

Mr.  Morse.  I  would  suggest,  Mr.  Anderson,  that  if  you  have  it  as 
early  as  that,  that  you  hand  it  to  Mr.  Chase.  Mr.  Chase,  I  tMnk, 
leaves  Chicago  for  Washington  

Mr.  Chase.  The  20th. 

Mr.  Morse.  That  can  be  considered  in  discussion  down  there^ 
Mr.  CuDAHY.  I  will  probably  have  that. 

Mr.  MoBSE.  Do  you  know  what  basis  this  appraisal  company  are 
using  on  your  Wichita  property? 

Mr.  CuDAHY.  I  think  they  are  using  1914,  1915,  and  1916  values: 
majrhe,  1917. 

Mr.  M088B.  Replacement  or  cost  or  what? 

Mr.  CuDAHT.  Keplacement 

Mr.  Anderson.  We  are  getting  that  made  oat  this  way,  getting  it 
first  of  all  on  present  values.  Then  we  are  working  back  to  a  pnor 
date  in  which  we  are  interested. 

Mr.  Morse.  Did  you  take  the  same  depreciati<m  on  your  property 
in  1916  and  1917  that  you  had  heretofore,  what  was  it,  2  and  3  per 
cent? 

Mr.  Anderson.  That  was  prior  to  1916  that  we  had  ihaL  In  1917 
we  raised  our  rate  on  machinery  to  7%  per  cent. 
Mr.  Morse.  7%  per  cent? 
Mr.  Anderson.  Yes,  sir. 
Mr.  Morse.  What  on  your  buildings? 

Mr.  Anderson  The  same  figures,  2  and  Ti/o,  and  on  machinery  we 
made  a  little  change  on  some  branch-house  depreciation  which 
would  not  affect  it  very  much,  because  we  found  them  a  little  lower. 

Mr.  Morse.  Mr.  Cudahy,  you  have  occasion  in  your  business  to 
borrow  a  good  deal  of  money,  do  you  not  ? 

Mr.  CuDAHT.  Too  much.   I  think  so,  and  the  bankers  think  so. 

Mr.  Andmon.  I  wanted  to  verify  that  previous  depreciation. 
Now,  I  thmk  I  said  3%  on  machinery.  I  believe  it  was  5,  but  I  will 
dieck  that  up. 

Mr.  MoftSB.  Yes.  Do  you  know  the  avmure  rate  you  paid  for 
borrowed  mcmey  ttaok  November  1, 1917,  to  date? 


124     lEAmcuM  nu»m  ummmom  ov  mAif-FAOxim  uiiwwiai* 

Mr.  Andebsok.  It  is  alon^  about  6^4* 

Mr.  CuDAHT.  I  think  you  had  better  make  it  6  per  oent,  I  should 

guess. 

Mr.  Morse.  In  the  Government  regulations  on  page  7  under  the 
item  of  interest,  is  provided  that  any  excess  payment  over  5  per  cent 
will  be  charged  to  operating  expense  or  to  cost  of  production.  I 
presume  that  you  have  been  taking  advantage  of  that  clause? 

Mr.  Anderson.  Yes. 

Mr.  Morse.  Are  you  contemplating  any  new  financing,  issuing 
bonds  or  stocks,  anything  like  that? 

Mr.  CuDAHT.  I  know  we  want  considerably  mOTe  momy  in  our 
business,  and  I  am  trying  to  find  out  a  way  to  get  it. 

Mr.  Mcnwi.  I  believe  Hiat  is  rather  lashi^tinable  since  Armour 
started  it  Are  you  contemplating  anything  of  the  kind! 

Mr.  Odbaht.  Yes;  but  I  don't  know  what  we  can  do  yet;  but  if 
I  can  do  it  on  a  satisf act(»y  basis,  I  am  willing  to  increase  our 
capital. 

Mr.  Mob^e.  If  it  is  a  proper  time  to  do  ity  and  yon  can  do  it,  yon 

are  going  to  do  it,  is  that  right? 
Mr.  CuDAHT.  Yes. 

Mr.  Morse.  Whether  by  issuing  l^nds  or  preferred  stock,  you 
liave  not  yet  decided? 

Mr.  CuDAHY.  No ;  I  have  not. 

Mr.  Morse.  You  have  not  gone  that  far,  I  presume? 

Mr.  CuDAHT.  No. 

Mr.  Morse.  You  will  be  guided  a  great  deal  by  the  success  of 
Armour  &  Co.? 

Mr.  Cud  AH  Y.  I  will  be  governed  by  it^  of  course. 
Mr.  Morse.  Of  course,  that  is  a  criterum. 
Mr.  CuDAHT.  Yes ;  that  is  a  fact. 

Mr.  Andkbsoh.  I  would  say,  Mr.  Morse,  that  our  depreciation  rates 

frior  to  1917  were  2  per  cent  on  buildings,  5  per  cent  on  machinery, 
want  to  correct  the  other  figure  I  gam 

Mr.  MoiiSB.  I  notice  in  your  balance  sheet,  Mr.  Cudahy,  that  you 
already  have  a  bond  issue  of  about  $8,760,000.  When  was  that 

issued? 

1^.  CuDAHT.  It  was  Deoembor^  1916— some  time— I  dont  know 

exactly. 

Mr.  Morse.  How  lanch  did  that  net  you  per  cent? 

Mr.  Cudahy.  5}. 

Mr.  Morse.  How  much  per  cent  did  that  net  you  on  par? 

Mr.  Cudahy.  On  par? 

Mr.  Morse.  How  much  per  cent  did  it  net  you  on  par?  For  in- 
stance, you  did  not  have  those  bonds  underwritten  at  par,  you  prob- 
ably— -r- 

Mr.  Cudahy.  I  had  them  written  at  95}. 
Mr.  Morse.  And  the  difference  between  95 J  wid  par- 
Mr.  Cudahy.  They  were  callable  at  102J. 
Mr.  Morse.  What  disposition  did  you  make  of  them  ? 
Mr.  Anderson.  We  amortized  that  oy«r  the  life  of  the  bonds. 
Mr.  CxjDAHT.  Thirty  years. 

Mr.  Moite.  You  have  been  charging  such  amortization  annually 

into  your  cost  of  production,  have  you  nott 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  125 

Mr.  Anderson.  Yes. 

Mr.  Morse.  What  is  the  interest  on  those  bonds? 
Mr.  Andbbson.  Five  per  cent. 

Mr.  Mouse.  Yon  can  not  charge  any  cost  of  interest  at  all  to  cost 
of  production  there,  can  you  ?  Do  you  consider,  Mr.  Cudahy,  that 
the  packing  business  is  extraordinaruy  hazardous  in  any  particular  t 

Mr.  Cudahy.  Yes;  I  do. 

Mr.  Morse.  In  what  respect  ? 

Mr.  CuDAHT.  On  account  of  the  fluctuations. 

Mr.  MoRsn.  You  mean  fluctuations  in  prices? 

Mr.  Cudahy.  Fluctuations  in  prices. 

Mr.  Morse.  Isn't  that  an  ordinary  risk  in  business? 

Mr.  Cudahy.  I  think  in  our  business  it  is  really  greater. 

Mr.  Morse.  How  is  that? 

Mr.  Cudahy.  Well,  there  are  so  many  things  that  enter  into  it — 
supply  and  demand — ^the  demand  as  affected  by  general  business 
conditions. 

Mr.  Morse.  Isn't  every  business  affected  that  way  ? 

Mr.  Cudahy.  And  then,  besides  that,  other  business  men  can  reg- 
ulate their  stock  just  as  they  wish  to — just  as  the  demand  is. 

Mr.  MoBSE.  Cant  you  regulate  your  stock?  You  don't  purchase 
more  cattle  than  you  need  at  any  time,  do  you  ? 

Mt.  Oddaht.  We  purchase^ — 

Mr.  Morse.  You  d<Mit  keep  a  stock  of  cattle  on  hand,  do  you! 
Mr.  CuDAHT.  We  keep  a  lot  of  products. 

Mr.  Morse.  I  know;  but  when  you  have  too  much  product  on 
hand  you  simply  shut  off  purchasing,  don't  you— purchasing  cattle? 

Mr.  CuDAHT.  What  would  become  of  the  cattle  if  weSd  not! 
All  the  cattle  and  all  hogs  in  the  market  are  purchased  every  day. 
If  we  did  not,  they  would  not  know  what  to  do;  they  would  not 
know  where  they  were. 

Mr.  Morse.  Do  you  mean  to  tell  me  that  you  keep  on  purchasing 
cattle  whether  you  have  a  demand  for  the  product  or  not? 

Mr.  Cudahy.  That  is  what  we  do.  We  purchase  everything  that 
comes  into  the  market  every  day ^ both  hogs,  cattle,  sheep,  and  calves. 

Mr.  Morse.  That  affects  the  price;  the  price  would  be  lowered, 
would  it  not? 

Mr.  Cudahy.  If  we  did  not  buy  ? 

Mr.  Morse.  Suppose,  for  instance,  you  have  a  lot  of  products  on 
hand  and  it  is  not  moving  as  readily  as  it  ought,  you  would  not  make 
an  offer  to  purchase  cattle  and  pay  the  price  for  those  cattle  that 
you  would  if  your  product  was  short  and  you  needed  it  to  supply  a 
demand,  would  you? 

Mr.  CuDAHT.  We  have  to  buy  our  stuff  on  the  market ;  we  have  to 
-  pay  for  it  the  same  as  the  rest  of  the  people ;  we  have  to  keep  our 
establishment  going.  We  cah  not  ^ut  down ;  we  can  not  let  our  men 

fo;  we  can  not  get  disorganiiBed.  The  stock  comes  to  market  and  it 
as  got  to  be  sold,  it  is  floing  to  be  sold,  and  we  have  to  buy  it ' 
Mr.  MmtSE.  You  wouW  not  pay  the  price  for  it! 
Mr.  Cudahy.  We  have  to  pay  the  market  price. 
Mr.  Morse.  The  market  price  might  not  be  the  price  thair— it 
would  not  be  as  much  as  if  there  was  a  great  demand  for  cattk  on 
account  of  products  being  short  in  the  packing  houses. 


186     MAmnm  raonr  umixahon  oh  meax-packing  induott. 

Mr.  Ctdaht.  It  does  not  apply  to  cattle  f  , 'r/L^fdJcSlL^^ 
nroducts  There  is  never  a  very  bi^  lot  of  beef  produ*^  .^"SJ 
^'to  Stie  coming  to  market  are  bought,  kiUed,  shipped,  uid  add, 

*«o~1he  recent  pa.t  has  ther«  beea  any  large  «no«Bt  of 

''irc  "utr  Yeirt^- h^^^     ^  ^  ^^^^^ 

as  there  are  at  the  present  time. 

Mr.  Morse.  Not  in  the  past  ^^"l^'^'^'^.u^^],  the  stocks  at 

were  this  time  last  year. 
Mr.  MoRSii.  What  i«  the  reason  lor  thati 
Mr.  CuDAHT.  The  supply.  . 

^  ^^Ti^vily  SirSen  pStTTood  and  the  den^and 
iJ^iofw^W^  ThTdomes  trade  has  been  light,  ps^- 
teulSySs^SeSTrade  has  been  Ught  on  account  of  their  1^ 

'"'Ki^^ut^ouX^know  of  any  other  «-n  whytt«  berf 
or  ihe  pakng  industry,  I  should  say,  is  partiwhrly  hw 

"'MrCuDAHT.  Well,  it  is  hazardous  because  we  hmve  to  l«y  «*«» 

^trM^K.  o. ;  but  y^^^  , 
,£\SZt^.\S^Z:'c^  ^^"VL  to  be  sold  .hen  it  gets 

^^Mr  You  have  no  loBses  on  your  cattle,  have  yout 

m  We  ~U  it  at  a  pric^metmies  we  sell  it  at  a  good 

^15^.  M^TbiS  SsSy  there  is  no  big  loss  or  unusual  loss,  i. 

*'m^* Cudaht.  You  mean  beef  products? 

Mr.  uZb..  I  mean  the  e"'-^.  P^^^^^J^^^V  l««do«s  sort  of 
Mr.  CroAHT.  I  have  «.l^/jy«  ^^J^'^^'^J  fli^SHiTthe  madni 
a  business  on  account  of  the  very  neavy  nwmwuw 

^'Mf  MoKSE  You  have  never  had  «»y.lo«>«  on  account  ol  floods  or 

account  of  a  flood.  xi^  *» 

Mr.  Moi»..  When wwag"       ^  „„(, ooo  los.,  «nd  in 

Mr.MoBSB.  That  k  a  miUMm  and  a  quarter  loss? 
Mr.  Cudaht.  Yes.  9 

US  ahout  $160,000. 


MAXTiinjM  FBOFET xnfmnoir  ok  msat-paokiho  ikdustby.  127 


Mr.  MmisB.  What  was  the  cause  ol  that  ezplosicHif 
Mr.  CuDAHY.  Gas;  kal^  pipes. 

Mr.  Morse.  You  haymix  had  any  fires  that  were  disaslious  on  ac- 
count of  not  having  insurance  ? 

Mr.  CuDAHY.  Yes;  we  have  had  some.  We  had  a  kiss  in  Omaha. 
What  year  was  that  hog  house  burned  downi  That  was  dbont  1916. 

$150,000  loss,  wasn't  it  f  ^ 
Mr.  Anderson.  It  was  over  $100,000. 

Mr.  CuDAiiY.  We  had  a  tornado  loss  of  about  f ort j  cnr  fifty  thou- 
sand dollars  at  Omaha. 

Mr.  Morse.  Those  are  very  small  in  proportion  to  the  size  of  your 

busmess. 

Mr.  Cudaht.  Not  so  small.  Every  little  counts,  you  know.  That 
IS  the  way  we  have  to  make  our  profit. 

Mr.  Morse.  You  would  not  consider  this  compared  with  other  busi- 
ness a  particularly  hazardous  business  ? 

Mr.  Cudaht.  I  do,  yes;  absolutely. 

Mr.  Morse.  I  mean  to  tell  you  that  I  do  not. 

Mr.  CxTDAHY.  If  you  were  sitting  in  this  chair  for  about  25  or  30 
years,  you  would  not  think  so. 

Mr.  Morse.  I  am  basing  my  opiniim  on  having  examined  different 
Imes  of  busmess  that  really  have  hazards,  something  they  can  not 
control,  it  IS  impossible,  while  with  you  it  serans  to  me  that  ths 
things  that  happen  to  you  are  things  that  you  may  prepare  against, 
and  they  are  so  small  that  they  do  not  affect  the  buaness  mi^  cme 
way  or  the  other. 

Mr.  CuDAHY.  I  can  show  you  that  in  1»14  we  had  an  actual  hiss 

m  our  business  on  meat. 

Mr.  Morse.  Which  you  made  up  on  your  products  ? 
^  Mr.  CuDAHY.  No ;  we  made  it  up  on  the  Old  Dutch  Cleanser,  which 
IS  not  made  from  a  by-product.  In  1911, 1912^  and  1913  our  business 
mowed  very,  very  little  profit. 

Mr.  Morse.  In  view  of  the  uncertainty  in  determining  profits  un- 
der the  present  Government  regulations,  on  account  of  the  apparent 
neoeffiity  of  taking  losses  or  profits  in  the  inventory  before  the  o-oods 
are  disposed  of,  would  you  favor  some  other  basis  of  regulation  ? 
Wat  mstance,  the  Canadian  regulation,  which  provides  for  2  per 
cent  on  sales. 

Mr.  CuDAHY.  I  would  not  favor  2  per  cent  I  think 

Mr.  Morse.  I  dont  want  to  have  you  think  that  I  want  to  have 
you  say  that  you  favor  2  per  cent  or  any  other  per  cent  I  would 
like  to  put  you  on  record  though,  as  rather  favoring  a  plan  of  that 
kind  at  some  per  cent  on  gross  sales,  as  a  method  that  could  be  more 
eiisily  checked  up  and  probably  save  you  trouble,  and  everyone  else 
concerned.  My  reason  for  asking  that  question  is  tiiat  it  is  prettf 
well  acknowledged  on  account  of  the  way  inventories  apparently 
have  to  be  figured  that  it  is  very  hard  to  determine  what  your 
profits  are  at  any  stated  period,  because  there  will  be  profits  <m  your 
inventory,  or  there  will  be  losses,  it  works  both  ways. 

Mr.  Anderson.  Your  system  of  a  basis  of  percentage  on  sales 
would  leave  that  question  still  open,  would  it  not? 

Mr.  Morse.  It  would  not,  unless  there  is  a  limitation  put  on  vour 
profits.  Mr         J  ^ 


■iltfi»ffti.T 


128     uAJUixm  PROFIT  umTimov  on  umkr-VAxmisQ  imvmxt. 

Mr.  Ghasb.  It  is  the  same  problem  eKecQy.  There  is  an  allowed 
profit,  an  actaal  profit.  The  actual  profit  axways  has  an  inventory 
which  has  to  deal  with— 

Mjr.  Mouse.  The  inventory  is  a  factor,  no  doubt  about  that,  and  it 
is  a  question  whether  the  basis  of  a  percentage  on  sales  or  the  pres- 
ent basis  on  invested  assets,  as  to  which  is  best.  ^ 

Mr.  CxmAMT.  The  objection  I  see  to  a  percentage  basis  is  that  it 
might  increase  competition,  unless  there  is  some  regulation  as  to  the 
amount  of  business  that  each  house  should  do,  and  in  that  way  we 
might  run  into  very  high  prices,  unnecessarily  high. 

Mr.  Morse.  I  take  it,  you  have  not  given  that  question  very  care- 
ful consideration,  you  have  not  had  time  to  do  it,  unless  you  have 
considered  it  before  this  conversation. 

Mr.  CuDAHY.  Well,  not  seriously,  but  that  would  be  the  great  ob-  y 
jection  I  would  see  to  it.    Everybody  would  try  to  see  how  much 
business  t^iey  could  do,  the  more  sales  they  would  make,  the  more 
they  would  get,  and  it  would  result  in  running  prices  to  an  unieaaon- 

able  basis.  ^ 
Mr.  MoRSB.  But  if  there  is  a  limit  to  the  profit  

Mr.  Chasb.  No  limit  undor  that  scheme,  the  mm  you  increase  \ 
your  turn-over  the  more  your  profit 

Mr.  GimAHT.  I  think  it  would  work  a  great  hardship  <m  some 
houses. 

Mr.  Mouse.  You  seem  to  think  the  present  regulations  are  best, 
TOOvided  a  scheme  of  coet  and  valuation  could  be  found  that  would  ^ 

be  equitable  1 

Mr.  CuDAHY.  Yes :  I  think  the  present  basis  works  out  a  fair  per- 
centage of  profits.   Our  figures  show  about  2  per  cent  so  far. 

Mr.  Morse.  When  I  say  cost,  of  course,  I  mean  so  the  inventory 
could  be  valued  at  cost,  and  so  that  the  transfer  could  be  made  at  ^ 
cost  instead  of  at  the  market. 

Mr.  CuDAHY.  All  of  our  by-products  had  been  transferred  at  the 
market  price  that  we  show  at  the  end  of  the  inventory. 

Mr.  Morse.  The  inventorj^,  then,  ought  to  be  stated  at  cost? 

Mr.  CuDAHY.  No;  as  it  is  worked  now,  the  most  important  thing 
about  it  is  to  see  that — I  mean  for  the  Government,  and  also  for  ' 
anybody  that  is  trying  to  carry  out  the  regulations—^is  to  see  that 
the  transferring  of  by-products  to  other  departments  is  done  at  the 
market  price,  and  that  the  cost,  selling,  and  overhead  expense  are 
properly  distributed,  and  if  that  is  done  I  think  our  pi^eaent  ar- 
rangement is  very  fair. 

Mr.  MoBSE.  What  is  your  basis  of  distributing  overhead  expense  f 

Mr.  CuDAHT.  Mr.  Anderson  will  have  to  tell  you  that 

Mr.  Aiimnsoir.  We  have  got  several  bases.  For  instance^  the  over- 
head at  our  plimts,  such  as  superintendence^  and  so  on,  is  divided 
on  the  labor  pay-roll  basis.  Other  expense,  like  insurance  and  taxes, 
ei  our  plant  aea  divided  on  the  basis  of  value  covered  \  and  all  over- 
Ifead  that  pertains  to  selling  is  divided  on  a  sales  basis,  or  value  of 
sales,  so  we  have  virtually  three  distributions  that  we  make. 

Mr.  Morse.  What  do  you  do  with  general  administration? 

Mr.  Anderson.  The  general  expense  is  divided  up  as  between  sell- 
ing aiid  manufacturing— one-third  manufacturing,  two-thirds  sell- 
ing. 


•< 


ICAXUCUM  PBOflX  JWMITAIIION  ON  MBilT-PACKING  USTDUSTBY.  129 


Mr.  Morse.  Would  you  be  in  favor  of  a  uniform  scheme  of  distrib- 
uting overhead  in  all  packing  plants? 

Mr.  CuDAHY.  There  is  only  one  thing  about  it— we  thmk  ours  is 
right.  We  have  worked  on  it  for  a  long  time.  We  think  it  is  right, 
but  if  anybody  can  show  us  a  better  plan,  or  more  equitable,  we  are 
willing  to  take  it.  . 

Mr.  Morse.  Don't  you  think,  as  a  general  propositi(m,  if  you  dis- 
tributed overhead  cost  in  a  uniform  manner  that  it  would  be  more 
just  to  all  of  you,  and  everyone  concerned  in  the  proportion? 

Mr.  CuDAHT.  I  think  it  would  work  out  all  right ;  no  doubt  it  would 

be  properly  distributed.  ,       .  . 

Mr.  MoBSE.  You  think  the  same  thing  is  true  as  to  depreciaU( 


*a  uniform  scheme  of  depreciation?  ^       ,        i.  u 

Mr.  Akdshson.  I  think  that  should  be  done.  I  think  we  should 
have  a  uniform  scheme  of  depreciation.  Of  course,  one  packer 
might  have  an  older  plant  than  another,  requiring  a  higher  rate  pos- 
sibly, but  I  think  a  uniform  sj^fcem  could-  be  arrived  at  by  consul- 
tation. 

Mr.  Morse.  A  scheme  might  be  worked  out? 
Mr.  Anderson.  It  could  be  worked  out. 

Mr.  Tator.  Mr.  Morse,  I  am  interested  in  what  Mr.  Cudahy  said 
about  regulation— that  regulation  by  a  certain  per  cent  on  sales 
might  cause  some  unnecessary  competition — that  is  what  you  meant, 
is  it? 

Mr.  Cudahy.  Yes.  ^     , .  i 

Mr.  Tator.  I  know  the  packers  pretty  well— the  five  big  packers, 
now — and  I  would  be  interested  to  know  who  you  would  put  in  cer- 
tain classes  there,  as  to  competition,  if  it  would  be  between  the  big 
packers,  or  as  between  the  big  packers  and  the  so-called  small 

0  ackers  ? 

Mr.  Cotaht.  It  might  be  anybody— it  might  be  everybody  that  is 

in  the  business.  ^  ,        .  ,       *  •• 

Mr.  Tator.  How  would  it  be  unfair  to  either  of  those  groups  if 

they  were  all  on  t^e  same  basis? 
Mr.  Cudahy.  One  house  mifeht  have  a  different  policy.  They 

might  want  to  extend  Uieir  business. 
Mr.  Tator.  What  harm  would  that  do,  if  they  all  wanted  to,  why 

wouldn't  that  be  a  ftdr  policy,  if  they  wen  wUling  to  go  after  the 

business  ? 

Mr.  Cudaht.  It  is  not  fair  policy,  because  it  might  result  in  work- 
ing a  great  hardship  on  some  of  the  smaller  houses. 

Ifr.  Tator.  Do  you  refer  now  to  the  packers  other  than  the  Big 
Five,  when  you  say  the  smaller  houses? 

Mr.  Cudahy.  I  don't  know  whether  we  are  the  Big  Five  or  not. 

1  am  not  as  big  as  some  of  them.  I  don't  know  whether  I  belong  in 
that  class  or  not. 

Mr.  Tator.  You  would  not  want  to  be  put  on  the  same  basis  of  2 
per  cent,  for  instance,  with  Armour  and  Swift? 

Mr.  Cudahy.  Well,  I  don't  see  how  you  could  regulate  it  very  well 
and  have  one  packer  upon  one  basis  and  another  packer  on  another, 
but  I  think  tlwt  2-per-cent  limit  on  sales,  or  any  other  percentage, 
that  it  might  work  a  great  hardship  on  some  of  flie  houses. 

Mr.  MoBSB.  Some  of  the  smalto  nouses! 

189888— S.  Doc.  110, 66-1  9 


IIM       ICAXIMUM  PROFIT  LIMITATION  ON  MSAT-PAOKINO  INDUSTBT. 

Mr.  CuDAHT.  Yes,  sir;  some  of  them  might  have  facilities  that 
they  could  make  that  2  per  cent,  and  they  might  be  willing  to  do  it 
for  less. 

Mr.  Tator.  It  amounts  to  the  same  thing.  When  you  put  it  on  the 
investment  basis,  it  is  only  a  test  of  how  efficient  they  are  really  in 
comparison  with  each  other,  whether  they  are  on  an  investment  basis, 
or  on  a  2  per  cent  selling  basis? 

Mr.  CuDAHT.  I  don't  think  there  is  the  same  incentive  to  spread 
out 

Mr.  Tatob.  My  own  idea  would  be—  ' 
Mr.  Ctoahy.  Two  per  cent  is  something  that  if  vou  fix  that  per- 
oenlife  we  are  going  to  make  a  lot  of  profit,  and  if  a  oonoem  is  op- 
erating on  a  percentage  basis,  it  would  oe  a  sure  things  and  it  womd 
be  something  for  him  to  work  for. 

Mr.  Tatob.  He  would  not  have  anything  more  fixed  than  he  has  ' 
now. 

Mr.  CuDAHY.  There  isn't  anything  fixed  about  the  business  

Mr.  Tator.  There  isn't  anything  fixed  about  2  per  cent  on  sales; 
he  would  have  to  make  it  if  he  could. 

Mr.  Cudahy.  Yes.  -s 
Mr.  Tator.  Therefore,  if  he  could  not  make  his  2  per  cent  on  sales 

or  did  not  care  to  make  it,  but  wanted  business  now  with  the  9  per 

cent  regulation,  he  could  make  9  per  cent. 

Mr.  Cudahy.  There  has  not  been  that  tendency. 

Mr.  Tator.  Why  do  you  think  there  will  be  a  tendency  when  there  , 
has  not  been  any? 

Mr.  Cudahy.  That  is  just  my  opinion,  that  is  all. 

Mr.  Tator.  I  am  interested  in  knowing  just  what  you  had  in  mind 
there. 

Mr.  Cudahy.  I  think  that  would  be  the  tendency,  to  do  it.  I  think 
everybody  would  want  to  increase  their  business.  ' 

Mr.  Whippije.  For  the  purpose  of  these  regulations,  do  you  believe 
that  it  is  possible  to  segregate  your  business,  your  assets  and  your 
j^rofits  into  these  three  different  classes  which  luive  been  laid  down 

Mr.  Anderson.  Absolutely.  « 
Mr.  Whipple.  Your  stock  can  be  determined,  so  that  you  can  de- 
termine the  investment  in  any  one  class? 

Mr.  Anderson.  I  think  we  have  already  done  so. 

Mr.  Whipple.  You  feel  that  the  profits  can  likewise  be  segregated? 

Mr.  Anderson.  I  haven't  any  doubt  of  it. 

Mr.  Whipple.  That  view  of  the  business  does  not  show  on  your 
books  at  the  present  time;  that  would  have  to  be  a  separate  calcu- 
lation ? 

Mr.  Anderson.  Separation  in  classes  1,  2,  and  3  ? 

Mr.  Whipple.  Yes.  * 

Mr.  Anderson.  Slightly  modified,  very  few  changes  to  be  made.  ' 
We  have  the  reconciliation  to  present  at  any  time  that  it  is  required. 

Mr.  Morse.  In  other  words,  your  books  do  not  take  the  division  of 
capital  in  these  classes,  or  the  profits,  but  you  have  some  kind  of  a 
statistical  record  where  you  have  arrived  at  that. 

Mr.  Andkrson.  Our  books  show  each  department  that  we  carry. 
Those  departments  are  placed  in  class  1, 2,  or  3,  with  the  exception  of 


< 


MAXIMUM  FBOUT  LIMITATION  ON  MBAT-PAOKINO  INDUSTRY.  131 


one  or  two  departments,  small  departments^  where  we  have  not  made 
a  differentiation  between  classes,  or  between  pit)ducts,  we  can  show  it 

Mr.  Morse.  You  think  it  is  entirely  posrnble,  though,  to  carry  out 
these  r^^lations? 

Mr.  (^JDAHY.  I  am  sure  of  it  in  our  cast,  because  we  have  not  got 
so  many  of  them.  Our  Old  Dutch  Cleanser  is  absolutely  separate. 
Our  plant  is  located  away  from  the  packing  plant  and  it  

Mr.  Morse.  Is  that  a  separate  corporation? 

Mr.  Cudahy.  No  ;  but  we  always  keep  it  separate,  because  the  man 
that  runs  that  department  shares  in  the  profits. 

Mr.  Whipple.  You  have,  I  think,  some  branch  houses  through  the 
country,  subsidiary  corporations  throughout  the  country? 

Mr.  Anderson.  Yes. 

Mr.  Whipple.  Is  there  any  slaughtering  business  at  those  branch 
houses,  or  are  they  merely  distributing  centers  ? 
Mr.  Cudahy.  Distributing  centers. 

Mr.  Whippub.  Is  your  only  slaughtering  house  in  Chicago? 

Mr.  CtTOAHT.  No^  we  haven't  got  any  here  in  Chicago. 

Mr.  Whipple.  Where  is  your  slaughterhouse  ? 

Mr.  Cudahy.  Kansas  City,  OmiSia,  Sioux  City,  Wichita,  Salt 
Lake,  and  Los  Angeles. 

Mr.  Whippub.  Do  you  run  separate  sets  of  books  for  each  one  of 
those  houses? 

Mr.  Akderson.  For  some  of  them. 

Mr.  WmPFLE.  Are  the  books  for  those  separate  brandies  uniform 

all  the  way  through  ? 
Mr.  Anderson.  Yes,  sir. 

Mr.  Whipple.  So  that  you  can  estaUish  then  a  uniform  system 

in  your  slaughtering  houses! 
Mr.  Anderson.  Yes,  sir. 

Mr.  Whipple.  So  far  as  you  distribute  in  your  sale^  offices,  can 
they  be  brought  right  in  and  combined  with  your  accounts  so  that 
we  can  deal  with  the  situation  as  a  whole? 

Mr.  Anderson.  Yes,  sir. 

Mr.  Whipple.  Make  up  a  consolidated  balance  sheet,  a  consoli- 
dated profit  and  loss  statement  in  detail? 
Mr.  Anderson.  We  do  that. 

Mr.  Morse.  You  have  no  control  account  on  the  books,  however, 
that  show  the  sales  made  by  the  different  branch  offices  ? 

Mr.  Anderson.  Each  branch  house  renders  to  us  once  a  month  a 
uniform  trial  balance  of  its  general  ledger,  and  that  accounts  for  its 
products,  with  the  exception  of  a  few  specialty  branches. 

Mr.  Mouse.  You  have  no  sales-control  account  in  your  ledger  ? 

Mr.  Andebson.  We  have  no  sales-control  account,  but  to  clear  up 
your  idea  on  that,  I  will  say  that  we  run  our  Dutch  Cleanser  depart- 
ment, and^soap,  and  hair,  and  glycerin,  sales  of  the  products  do  not 
go  through  our  branch  houses:  we  operate  them  entirely  separate. 
Our  arrangement  is  to  sell  jobbers,  let  the  jobbers  distribute  our 
product.  We  do  not  go  to  the  retail  trade  with  these  different  prod- 
ucts through  our  branch  houses. 

Mr.  Morse.  It  is  only  strictly  meat  products  you  sell  throu^  your 
branch  houses? 


132       MAXIMUM  PBOFXT  LIMIXATION  ON  MSAI-PACKIIia  INPUSXKZ. 

Mr.  Anderson.  Yes,  sk".  I  know  some  houses  sell  all  their  prod- 
ucts through  their  branch  houses,  but  in  our  case  we  sell  through 
jobbers. 

Mr.  Chase.  I  would  like  to  ask  a  question.    Do  you  carry,  Mr. 
Anderson,  on  your  books,  these  investment  figures  by  departments? 
Mr.  Anderson.  No. 

Mr.  Chase.  That  is  a  statistical  summary  made  on  the  outside! 
Mr.  Akdebsok.  Yes. 

Mr.  Chasb.  So  when  you  say  that  yon  can  make  a  distinction  be- 
tween the  three  classes  as  to  inTestment,  yon  either  have  to  calculate 
the  inTestment  statistieaUy  for  each  department,  and  then  combine 
them  by  classes,  or  else  you  have  to  take  that  method  that  we  worked 
out  in  conference,  of  the  consolidated  plan  and  break  it  down  into 
classes  ? 

Mr.  Anderson.  At  our  plants  we  revise  the  figures  once  a  year 
and  check  the  amount  of  building  value  occupied  by  each  depart- 
ment, and  bring  them  up  to  date  once  a  year. 

Mr.^  Chase.  Now,  in  figuring  investment  by  departments  other 
than  interest,  what  is  your  procedure? 

Mr.  Anderson.  Inventories  on  account;  we  take  the  method  that 
was  approved  by  your  people. 

Mr.  Chase.  Do  you  bring  cash  in  there? 

Mr.  Anobuson.  Yes ;  we  divide  the  cash-  up  on  that  basis. 

Mr.  Chasb.  And  deduct  the  payables? 

Mr.  Andkbson.  Deduct  the  payables. 

Mr.  Chask.  It  is  then  a  matter  of  considerable  estimate,  although 
you  feel  it  is  accurately  estimated? 

Mr.  Anderson.  No  ;  I  would  not  say  it  was  a  considerable  estimate. 
There  is  a  debatable  question  on  those  open  accounts.  You  could 
not  run  through  our  accounts  and  pick  out  an  unpaid  item ;  we  have 
got  to  figure  the  total  outstanding  accounts  and  then  take  the  credit 
terms  and  divide  them  on  the  credit  terms,  just  as  you  f<^  au* 
thorized  us  to  do. 

Mr.  Chase.  That  is  all. 

Mr.  Morse.  Anything  further,  Mr.  Whipple? 

Mr.  Whipple.  Do  you  believe,  Mr.  Cudahy,  that  the  capital  in 
your  business  which  is  represented  by  borrowed  money  should  have 
the  same  rate  of  return  as  your  invested  capital? 

Mr.  Cudahy.  Do  I  figure  that  way? 

Wr.  Whiffle.  Yes;  is  that  your  opinion  on  the  subject? 

Mr.  CtTDAHT.  We  dionld  have  the  same  return  on  our  borrowed 
caDital  as  on  the  

Mr.  Whifflb.  The  rate  of  return  that  yon  get  should  be  the  same 
on  borrowed  money. 

Mr.  Anderson.  I  think  we  should  have  more.  There  is  more 
risk  attached  to  it. 

Mr.  Cudahy.  We  do  not  get  it,  though. 

Mr.  Whipple.  Oh,  yes,  you  do,  less  the  cost  of  borrowed  money. 

Mr.  Cudahy.  Less  the  cost? 

Mr.  Whipple.  Less  the  cost  for  the  money.  You  pay  your  interest 
on  your  borrowed  money. 

IS/Tr.  Morse.  And  you  charge  the  excess  to  cost  of  production,  the 
excess  over  5  per  cent! 


« 


>-        MAXIMUM  PBOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  133 

Mr.  Cudahy.  We  charge  it  to  expense. 

Mr.  Whippli.  In  other  words  

Mr.  MoBSE.  That  is  the  5  per  cent. 
y         Mt-  Anderson.  The  excess  over  5  per  cent  is  charged  to  expense. 
Mr.  Morse.  Expense  of  production? 

Mr.  Anderson,  les;  if  we  pay  6  per  cent  iot  our  money,  there  is 
1  Der  cent  charged  to  expense. 

Mr.  Whipple.  We  nuike  a  distinction  there,  Mr.  Anderson.  We 
y  would  not  call  that  expense,  we  would  call  it  deduction,  that  is  1  per 
cent,  and  you  think  the  correct  way  would  be  that  5  per  cent  would 
be  charged  to  expense? 

Mr.  Cudahy.  Yes. 

Mr.  Anderson.  We  do  not  charge  5  per  cent  to  expense;  we  would 

like  to. 

Mr.  Morse.  Not  expense  of  production,  general  expense,  .the  same 
as  you  buy  paper. 

Mr.  Cudahy.  The  same  as  our  labor  account. 
Mr.  MoBSE.  No ;  the  labor  account  is  a  different  item. 
.  Mr.  Anderson.  If  we  buy  a  paper  by  the  year,  that  would  be 

^      diarged  to  expanse  of  newspaper  subscription. 

Mr.  WmmuL  You  would  not  charge  that  to  cost  of  production, 
#eould  you? 

Mr.  Anderson.  We  would  lilce  to  cha)^  5  per  cent  interest  the 

same  way. 

>         Mr.  Whipple.  You  do  not  now  charge  that  to  pioductbn,  that  5 

per  cent  interest? 
Mr.  Anderson.  We  do  not. 

Mr.  Whipple.  Mr.  Cudahy  said  it  was  charged  to  cost  of  pro- 
duction. 

Mr.  Anderson.  As  it  is  now  we  get  9  per  cent  on  our  capital, 
and  we  g:et  4  per  cent  on  our  borrowed  capital. 

Mr.  Whipple.  You  think  you  are  entitled  to  have  it  on  borrowed 
capital? 
Mr.  Anderson.  Surely,  more. 
V         Mr.  Wmnus.  You  should  make  money  on  borrowed  capitaL 
^         Mr.  Andbrson.  Abscdutely. 

Mr.  WmFPLB.  That  is  all  right  I  just  want  to  get  your  opinion. 
Mr.  Cudahy.  I  think  we  ought  to,  because  they  may  call  us  for 
$10,000,000.   The  amount  of  profit  should  be  made.on  the  lunount 
of  business  done.    I  don't  think  there  is  anything  else, 
f         Mr.  Morse.  Mr.  Cudahy,  Mr.  Chase  has  made  a  figuration  of  per- 
centages showing  what  profit  you  were  allowed  to  make,  and  what 
profit  you  may  make,  all  figured  out  on  a  certain  basis.   I  would 
like  to  have  Mr.  Chase  show  that  to  you,  and  explain  it  to  you  so 
^         you  will  know  the  basis  he  has  made  his  calculation  on  and  see  if 
.        you  think  the  basis  is  fair  and  also  if  you  think  that  you  will  make 
r        the  amount  of  profit  on  your  total  investment  that  is  shown  in  the 
figuration.    I  might  say  that  this  figuration  of  Mr.  Chase's  is  the 
«9         best  means  that  anyone  can  have  at  their  disposal  at  the  present 
time  of  gaining  an  idea  as  to  what  you  are  entitled  to  make,  and 
what  you  will  make,  and  it  is  rather  vital  that  you  should  go  over  it. 
\^ .      -  Mr.  CuDABT.  Our  statement  to  the  Food  Administration  shows 
we  made  about  our  allotted  profit,  and  of  course  what  we  are  going 
to  makie  the  next  six  months  we  dp  not  know. 


> 


134        UAXtUmt,  fEOFIT  LIMITATION  ON  MEAT-PAOKING  PfDUSXi^r, 

^  Mr.  MoKSB.  Mr.  Chase  has  figures  there,  as  I  understand  it.  of 
just  four  iiM>iiths.  •  ^ 

Mr.  CuDAHT.  Six  is  the  return,  isn't  it? 

Mr.  AmmsoK.  We  have  not  got  that  pnenod  in  yet. 

Mr.  Chabb.  Mr.  Cudahy,  is  it  your  opinion  that  these  figures  are 
baaed  as  I  have  based  th^  on  the  results  for  the  four  months  of  the 
recpilation,  will  work  out  the  same  basis  for  a  year! 

Mr.  CuDAHT.  As  I  understand  it,  our  profits  in  six  months  were 
about  $160,000,  and  if  that  wm  the  limit  we  have  got  an  item  in 
there  of  about  $140,000  now  that  would  come  into  this  coming 
period,  which  would  make  our  first  six  months'  operation  right 
according  to  the  limit.  Your  question  as  to  whether  or  not  the 
permissible  profits  for  the  last  six  months  will  be  equal  to  the  per- 
missible profits  for  the  first  six  months,  I  think  we  can  make  that, 
if  our  capital  keeps  up  the  same  way;  but  the  question  of  whether 
we  will  be  able  to  make  the  permissible  profits  for  the  last  half  of 
the  year  is  extremely  doubtful.  We  are  right  on  the  level  now.  If 
you  examine  our  figures  for  last  year,  at  the  end  of  our  first  six 
months  we  had  a  profit  of  between  four  and  five  million  dollars, 
and  we  wound  up  at  the  end  of  the  year  with  $5,500,000.  Now, 
this  year  at  the  end  of  the  fourth  month,  it  looked  as  though  our 
profits  were  going  to  be*  enormous.  At  the  end  of  the  sixth  month 
WB  had  gone  back  almost  to  normal,  and  as  I  say,  we  will  be  normal 
when  we  take  in  this  other  item  I  speak  of.  Nobody  can  tell  what 
IS  going  to  happen. 

Mr.  Morse.  It  is  reasonable  to  suppose  that  conditions  as  far 
as  the  packing  industry  are  concerned  will  ramain  the  same,  or 
even  will  change  so  that  you  will  make  more  9 

Mr.  Anderson.  On  some  of  our  meat  products,  Mr.  Cudahy,  for 
the  first  month  of  this  period,  that  would  be  for  the  month  of  May, 
we  have  run  against  very  heavy  losses  in  some  of  our  meat  products, 

enormous.  ■ 

Mr.  Cudahy.  That  is  why  it  is  a  hazardous  business,  because  we 
do  not  know  what  we  are  going  to  realize  on  the  products  that  we 
have  in  our  house.  We  have  had  a  shrinkage  in  value  as  high  as 
4  cents  a  pound  in  the  last  60  days  on  some  particular  goods. 

Mr.  MoRSE.  What  was  the  cause? 

Mr.  Cudahy.  Lack  of  demand. 

Mr.  Ghasb.  What  is  your  answer  to  this  proposition  as  to  whether 
yon  can  continue  to  make  the  allotted  profit  ? 

Mr.  AKnrasoK.  We  doubt  very  much  if  we  can.  Those  figures 
look  about  nght  for  the  actual  permissible  profits. 

Mr.  Morse.  What  figures  are  those,  for  the  reccwdf 

Mr.  Chase.  The  allowed  profits  <m  class  1,  <m  the  basis  of  this 
figuring,  is  $4,969,000  for  the  year;  dass  2,  $661,000. 

Mr.  CuuAHT.  I  don't  see  where  you  get  tlmt» 

Mr.  Chase.  It  is  right  off  your  report. 

Mr.  Cudahy.  That  is,  permissible  profits. 

Mr.  Tator.  Based  upon  your  investments  for  the  year. 

Mr.  Chase.  You  have  to  take  interest  out  of  that.  It  looms  largely. 

Mr.  Cudahy.  Of  course,  the  only  basis  to  be  considered  would  be 
net  profit. 

Mr.  Chase.  That  is  to  youi 


Mr.  Anderson.  Yes;  net  profits.  My  estimate  is  somewhere  be- 
tween $5,500,000  and  $6,000,000  before  the  taxes,  the  income  taxes,  or 
the  excess  taxes  are  jjaid;  that  is,  in  all  of  our  classes,  1,  2,  and  3. 

Mr.  Chase.  That  is.  then,  in  your  opinion,  you  won't  be  able  to 
make  the  allowed  profit? 

Mr.  Cudahy.  I  don't  think  our  allowed  profit  comes  anywhere 
near  that. 

Mr.  Anderson.  After  deducting  our  interest  from  our  allowed 
profit,  we  will  be  gomg  the  limit  if  we  can  make  $5,500,000  at  the 
end  of  the  year,  for  which  we  will  have  to  pay  a  Federal  income  and 
ezcess-pronts  tax,  that  are  going  to  be  some  taxes. 

Mr.  GuDAHT.  We  don't  kaow  what  they  are  yet. 

Mr.  CHAfiB.  How  dojihose  earnings  compare  with  the  earnings  in 
previous  years? 

Mr.  CuDAHT.  They  compare  about  the  same  as  last  year  on  a 
smaller  business  of  last  year.  Last  year  our  sales  were  only  $184,- 
000,000,  and  this  year  they  are  nearly  $300,000,000. 

Mr.  Chase.  That  is,  you  make  about  the  same  profit^  but  it  will  be 
a  lower  rate? 

Mr.  Cudahy.  It  will  be  about  2  per  cent  on  our  sales. 

Mr.  Morse.  Is  it  your  opinion,  Mr.  Cudahy,  that  these  allowancee 
working  out,  we  will  say  25  per  cent  on  your  net,  that  that  is  a  rea- 
sonable return,  all  circumstances  considered? 

Mr.  Cudahy.  I  think  it  is  a  reasonable  return  if  we  are  able  to 
make  the  return  which  we  are  allowed  to  make.    I  think  it  is  fair. 

Mr.  Morse.  Mr.  Cudahy,  do  you  think  that  the  figures  as  sub- 
mitted by  Mr.  Chase  is  a  fair  criterion  for  a  year's  business  ? 

Mr.  Cudahy.  I  think  his  figures  are  excessive.  I  do  not  hope  to 
make  amrthing  like  that. 

Mr.  MoBSE.  As  far  as  this  Government  regulation  is  concerned,  we 
have  only  had  the  result  of  four  months.  Is  that  too  small  a  time 
in  your  opinion  to  form  an  opinion  or  judgment  as  to  what  profit 
will  be  returned  for  a  year's  operations  under  this  regulation? 

Mr.  CuDAHT.  Yes;  1  don't  think  you  can  determine  it  under  eight 
months.  Of  course,  six  months  is  nearer.  Our  figures,  which  have 
not  been  submitted  yet,  that  we  are  just  making,  are  the  limit 

Mr.  MossE.  I  might  say,  Mr.  Cudahy,  I  had  that  in  mind  regarding 
this  inventory  proposition,  not  having  costs  you  can  not  compute 
profits  very  well  for  a  limited  period  like  a  month  or  two  months  or 
three  months  or  four  months,,  or  .even  five  montiis  or  six  wMWitha  Do 
you  think  that  is  true  ? 

Mr.  Cudahy.  Well,  it  is  pretty  hard  to  tell. 

Mr.  Morse.  I  am  talking  as  an  accountant.  As  an  accountant  I 
can  see  that  possibility,  and  Mr.  Anderson  can  see  it  as  an  accounta^' 
do  you  not,  Mr.  Anderson? 

Mr.  Anderson.  Yes. 

Mr.  MoBSE.  You  are  liable  to  have  fluctuations  in  the  inventory 
viduef 

Mr.  CuDAHT.  You  are  bound  to. 

Mr.  MoHSE.  Are  you  satis^  with  that,  Mr.  Chase? 

Mr.  Chase.  Yes. 

Mr.  Morse.  Is  there  anything  else,  any  other  question  anyone  wants 
to  ask  Mr.  Cudahy,  or  that  Mr.  Cudahy  wouid  care  to  answer  or 
any  further  information  that  will  illummate  the  subject?  ' 


186       MAXIMUM  PBOFIT  UMITAXIOir  OIT  MlAIT-PAOKIira  UfDmiKT, 


Mr.  CuDAHY.  I  haven't  anything  in  mind. 

Mr.  Morse.  Mr.  Anderson,  you  have  a  paper  in  which  you  have 
apparently  estimated  some  profits,  though  I  have  not  seen 'it  Is  it 
of  a  nature  that  you  would  like  to  put  in  the  record  ?  If  so,  we  would 

be  glad  to  have  it  in  ? 

r^  Anderson.  I  think  probably  you  will  want  to  put  it  in.  Mr. 
Cudahy  has  not  gone  over  it  yet,  and  I  would  not  jike  to  do  that  until 
he  has  seen  it. 

Mr.  Cudahy.  Have  you  made  any  changes  in  it? 
Ife  Andxbsok.  Very  few;  only  the  one  change  which  you  sug- 
{^Bfiteou 

Mr.  Mora.  The  following  is  the  paper  prepared  by  Mr.  Anderson, 
secretary  of  the  Gndahy  Pltddng  Qo.,  information  which  we  would 
liKe  to  have  put  m  the  record: 

For  the  first  six  months  of  our  fiscal  year  1W8,  during  which  period 
we  were  working  under  the  regulations  of  the  meat  division  of  the 
Food  Administration,  the  profits  earned  on  business  covered  by 
classes  1  and  2  were  approximately  as  follows:  Class  1, 12,800,000; 
class  2,  $350,00a~total,  $3,150,000.  The  profits  permissible  mider 
^^orJi^flli*^^^         ^  ^»  $2,660,000;  class  S,  $880,000-total. 

In  these  two  classes,  as  you  understand,  are  included  all  profits 
from  business  in  meats  derived  from  slaughtered  live  stock,  business 
in  inedible  by-products  and  in  many  products  in  which  the  quantity 
of  material  derived  from  slaughtered  live  stock  is  relatively  stmilL 
and  in  some  cases  insignificant. 

d^i  n^"^  vroRts  of  $3,150,000  there  has  been  deducted 

$1,037,000,  being  the  proportion  of  interest  on  borrowed  money, 
whidi  applies  against  our  investment  in  these  two  classes.  The  net 
earnings,  tbererore,  for  6  months  on  all  business  in  classes  1  and 
S  amoimt  to  a  little  over  $2,100,000. 

^  Ko  deduction  has  betti  made  in  the  above  figures  for  the  Federal 
income  and  excess  profit  taxes,  which  even  at  the  present  rate 
would  run  into  the  neighborhood  of  one-half  niilli<m  dollars. 

These  profits  result  from  the  slaughter  of  412,408  cattle,  1,290,- 
164  hogs,  429,039  sheep,  64,e85  calves,  the  live  weight  of  which  ex- 
ceeded 742,000,000  pounds,  yielding  approximately  450,000,000 
pounds  of  meat,  all  highly  perishable  and  prepared,  handled,  trans- 
ported, and  merchandised  under  the  most  exacting  requirements. 
Based  UDon  all  earnings  as  above  we  have  a  profit  of  slightly  over 
one-third  of  a  cent  a  pound  for  all  this  risk  and  service. 

Our  net  profits  on  what  is  termed  class  3  departments—that  is,  those 
departments  which  bear  no  direct  relation  to  packing-house  busi- 
ness—were $1,174,000,  making  our  entire  net  profits  for  the  first  six 
months  of  our  present  fiscal  year,  after  deduction  of  interest,  but 
before  making  any  allowance  for  Federal  taxes,  $3,280,000. 

We  have  already  made  donations  this  year  to  the  Y.  M.  C.  A.,  Red 
Cross  Society,  and  other  war  relief  activities  of  nearly  $100,000. 
These  d<matlons  will  further  reduce  our  net,  as  under  the  regula- 
tieiis  of  the  meat  division  we  are  not  allowed  to  treat  them  as  nec- 
essary expense. 

Otur  total  sales  for  the  fiwt  half  of  the  present  fiscal  year  amounted 
to  ftS7/XXVKI0|  of  which  $104,000,000  were  from  busmess  in  classes 


MAUMVU  PROFIT  UMHATIOH  Oif  MEAT-PACKING  INDUSTRY.  137 


1  and  2.  Our  net  imfits,  therefore,  on  these  two  classes,  before  mak- 
ing any  deduction  for  Federal  taxes,  were  approximately  2  per  cent 
of  the  total  amount  charged  by  us  to  our  customers.  This,  of  course, 
will  be  substantially  reduced  by  the  payment  of  these  taxes. 

The  Cudahy  Packing  Co.  is  the  smallest  of  the  five  large  pacfeera. 
It  does  not  elaborate  its  product  to  the  same  extent  as  some  of  its 
larger  competitors,  nor  is  it  engaged  in  so  numy  lines  of  industry. 
Its  earnings,  therefore,  are  dependent  in  a  greater  degree  upon  its 
regular  packing-house  business  than  those  of  the  other  companies 
with  which  it  is  grouped  at  present.  For  this  reason,  any  reduction, 
if  such  is  contemplated,  would  be  more  injurious  to  it  than  to  the 
larger  packers. 

Our  books  show  that  under  the  present  regulations  our  earnings 
are  practically  in  line  with  the  earnings  of  the  past  two  years.  For 
example,  in  1916,  on  our  entire  business  profits  were  approximately 
2i  per  cent  on  sales.  In  1917,  2.40  per  cent  and  in  1918,  2.58  per 
cent.  From  the  last  figures  however,  no  deductions  for  Federal 
taxes  has  been  made. 

Our  sales  have  been  increasing  steadily,  as  the  following  figures 
shows  J 

 "   109,000,000 

iQi«  "   116,000,000 

1Q17   134.000,000 

1Q1C  7«  TkT   184.000,000 

1918  (6  months)  .   127,OQpCoOO 

The  total  profits  on  this  volume  of  business  have  been  far  from 
excessive  and  this  is  particularly  true  at  the  present  time  in  view 
of  the  constantly  increasing  difficulties  of  doing  business  and  the 
risks  incidental  to  the  higher  values  handled. 

In  taking  care  of  the  mcreased  demands  made  cm  us  bv  our  own 
Government  and  the  Governments  of  our  Alli^  we  have*  been  run- 
ning our  plants  to  full  capacity,  necessitating  vast  expenditures,  for 
live  stock,  labor  and  transportation  charges. 

Following  are  the  average  prices  paid  by  us  for  live  stock  during 
the  past  three  and  one-half  years : 


Hogs. 

Sheep. 

Cftlvas. 

1915  

$6.82 

7. 12 
8.50 
0.M 

S6.95 
8.43 
13. 10 
16.50 

S6.81 
8.08 
11.65 
14.04 

S6.82 
7.  SO 
7.78 

a» 

1916  ' 

1917  

1918  (6  months)  /,  

This  enormous  increase  in  values  has  made  it  necessary  for  us 
to  borrow  much  more  heavily  than  formerly.  At  the  dose  of  our 
last  fiscal  year  our  notes  payable  account  was  in  round  fibres 
$25,000,000.    Since  that  time  it  has  ezoeeded  $50,000,000,  and  is 

now  over  $48,000,000.  ' 

In  order  that  we  may  retain  the  confidence  of  our  banks,  whidi 
the  foregoing  figures  show  to  be  necessary,  it  is  essential  that  our 
busmess  be  reasonably  remunerative  and  our  profits  not  too  far  be- 
low other  industrial  companies,  most  of  whidi  are  eaming  at  the 
present  time  far  in  excess,  of  the  packers. 


138       MAXIMUM  PROFIT  LIMITATION  ON  MBAT-PACKINO  ISW&SBt* 

On  account  ol  the  high  values  tied  up  in  our  inventories,  whidi 
must  in  the  ntAxm  of  the  business  be  large  in  order  to  tide  over 
periods  of  scant  fooduction,  it  is  also  necessary  ihsit  prcAts  be  good 
at  this  time.  A  drop  in  the  market  of  a  few  cents  a  pound,  which 
H  easily  possible,  would  affsct  our  profits  to  the  extent  of  several 

million  dollars.  .  ,    i.  * 

Our  stock  of  products  and  supplies  at  the  end  of  April  were 
worth  in  the  neighborhood  of  $50,000,000.  A  drop  of  10  per  cent  m 
prices  would  result  in  a  loss  of  more  than  we  expect  to  make  during 
the  entire  current  year. 

Another  source  of  possible  loss  lies  in  the  plant  additions  whicn 
we  have  been  forced  to  make  and  are  now  making  in  order  to  hwi- 
dle  the  present  volume  of  business.  Many  alterations  and  addi- 
tions are  being  charged  to  our  capital  accounts.  The  wear  and  tear 
on  machinery  and  equipment  at  this  time  occasions  many  r^lace- 
ments  at  values  f  uUv  100  per  cent  in  excess  of  the  original  cost 

When  normal  coiuiitions  return  tliero  undoubtedly  will  be  much 
to  be  charged  off  against  earnings.  , .     .  , 

We  believe  you  will  agree  with  us  that  the  meat-packing  indus- 
try is  one  of  the  most  essential  at  this  time,  and  that  the  packers 
have  efficiently  fulfilled  all  calls  made  upon  them  so  far,  not  only 
by  our  own  Government  but  by  the  allied  countries. 

Our  profits  are  not  excessive  and  with  the  prospect  of  greatly 
increased  taxation  imminent,  we  sincerely  hope  no  changes  will  be 
made  in  the  food  regulations  that  will  bring  about  a  reduction  in 
the  amount  we  are  permitted  to  earn.  It  should  be  borne  in  mind 
that  competition  has  not  been  eliminated  in  our  domestic  business 
and  that  there  is  a  strong  possibility  that  we  may  not  earn  our  full 
quota  and  that  the  rate  of  earnings  for  the  first  half  of  the  present 
year  may  not  continue  throughout  the  balance  of  the  year,  and  that 
while  there  is  a  limitation  to  our  profits  there  is  absolutely  no  guar- 
anty against  loss. 

Mr.  Morse.  Is  there  anything  elset 

Mr.  GuDAHT.  Nothing  that  I  know  of.  That  is  all  I  have  in 
mind  just  now. 

(And  thereupon,  at  6.05  o'clodc  p.  m.,  June  12|  IdlB,  the  hear- 
ing of  the  above-entitled  matter  was  dosed.) 

MCWKES. 

CmCAQO,  IsAM^  June  11^  1918 — 10  a.  m. 

Present  on  behalf  of  the  Federal  Trade  CJommission :  Stuart  Chase, 
Esq.  •  Samuel  W.  Tator,  Esq. ;  Perley  Morse  &  Co.,  certified  public 
accountants,  New  York,  represented  by  Perley  M^se,  Esq.,  and  P. 
S.  Whipple,  Esq. 

Present  on  behalf  of  Miwris  &  Co. :  Edward  Morris,  jr.,  Esq.,  and 

H.  A.  Timmins,  Esq.  ,  .      ,  , 

Edward  Morris,  jr.,  was  called  as  a  witness  and  bemg  duly  exam- 
ined, testified  as  follows:  , 

Mr.  Morse.  Mr.  Morris,  you  are  familiar  with  the  regulations 
of  the  Food  Administration,  meat  division,  which  Ixave  been  in  effect 
gince  November  1,  1917? 
Mr.  MoBBis.  In  a  general  way  I  am. 


MAXIMUM  PROFIT  LIBOTATION  ON  MBAT-PACJKIHO  INDUSTRY.  1^9 


Mr.  MoBSE.  This  is  a  copy  of  those  resolutions,  is  it  not  ?  [Hand- 
ing document  to  witness.J 

Air.  Morris.  I  suppose  so.  .     ,      .  ,0 

Mr.  Morse.  You  say  you  are  familiar  with  them  m  a  general  way  ? 
That  means,  I  suppose,  that  you  are  familiar  with  their  workings 
and  their  effect — 

Mr.  Morris.  In  a  general  way. 

Mr.  Morse  (continuing).  Under  business  conditions  in  a  general 

way? 
i^jTr  JkioRRis  'Y'es. 

Mr.  Morse.  What  is  your  opinion,  from  the  packers'  standpoint 
as  to  the  reasonableness  or  unreasonableness  of  these  regulations? 

Mr.  Morris.  I  do  not  believe  we  have  hardly  gone  far  enough 
with  those  to  express  a  definite  opinion. 

Mr.  MoRSE.  Have  you  anjr  suggestions  to  offer  as  to  changes  which 
would  be  in  line  with  making  these  regulations  more  adaptable  to 
your  business? 

Mr.  Morris.  I  do  not  believe  I  have  any  suggestions  right  at  the 
present  time. 

Mr.  Morse.  Have  you  any  suggestions  to  offer  as  to  any  other 
basis  for  regulating  the  packing  industry? 

Mr.  Morris.  I  believe  that  was  gone  over  thoroughly  when  these 
regulations  were  put  in,  and  all  kinds  of  different  regulations  dis- 
cussed. The  Food  Administration  seem  to  feel  that  this  was  the 
proper  wav  to  regulate  them. 

Mr.  Morse.  Yes;  but  that  was  done,  I  take  it.  before  anything 
had  been  tried  out.  Now,  this  has  been  tried  out  since  November 
1,  and  the  Federal  Trade  Commission  

Mr.  Morris.  I  think  it  is  their  desire,  if  they  are  wrong  on  any- 
thing, to  change  it. 

Mr.  Morse.  Well,  you  think  there  is  anyway  where  these  regula- 
tions could  be  improved? 

Mr.  Morris.  I  haven't  any  suggestions. 

Mr.  Morse.  None  whatever  to  make? 

Mr.  Morris.  None  whatever. 

Mr.  Morse.  Are  you  familiar  with  the  regulations  promulgated 
by  the  Canadian  Government? 

Mr.  Morris.  No;  I  have  heard  more  or  less  about  th^.  I  db  not 
know  reaUy  what  went,  through  on  them. 

Ifo.  M(Hise.  You  never  read  them  over  ? 

Mr.  Morris.  Not  as  finally  passed.  Possibly  you  .could  give  me 
the  gist  of  them  rather  than  give  me  a  whole  copy. 

Mr.  Morse.  There  is  a  summary  here.  Mr.  Morris,  here  is  a  copy 
of  what  is  known  as  the  Canadian  regulations  regulating  the  pack- 
ing industry  of  the  Dominion  of  Canada.  I  will  ask  you  to  look 
through  these  and  tell  us  what  you  think  of  this  scheme  of  regula- 
tion as  opposed  to  the  United  States  scheme.  [Handing  paper  to 
witness.] 

Mr.  Morris.  That  is  pretty  hard  to  look  through  a  thing  and  ex- 
press an  opinion  of  it. 

Mr.  Morse.  Well,  you  have  noticed  that  the  Canadian  regulation 
is  based  upon  a  percentage  of  gross  sales,  while  the  United  States 
re^;ulation  is  based  upon  investment. 


140     MAxnnjic  pbofii  umitaxion  oh  MWT-PAOKnra  ormnnBT. 

M^.  is  based  both  ways,  as  I  nndeiatand  it,  Mr. 

Mr.  Chase.  Mr.  Morris  is  right. 
twS"'^i?MV^T^"'7-^''*  ^  ^""^       f'-o'n       is  which  you 

Si^^  sS^ti'ls^'o^^^^^^^^^^^^  '""^  -  the  b«u«  4t 

Mr.  MoKRis.  We  have  both  ways. 
Mr.  MoBse.  Which  would  you  prefer? 

n.^;^?*^  *  money-malcing  standpoint,  I  would 

F^^Tnnn^  as  possible.  I  do  not  mean  by  that  that 

wpTJf^  to  regulations;  if  regulations  will  help  wi  this  w^ 
we  are  in  favor  of  regulations. 

i^Jf^t^^J^r''  ^"^li?^  comment  now 

Mr  Afn»^f  T  ^'''"''/'^•'r  «»e.Canadiaii.or  the  United  States? 
Mr.  Morris  I  do  not  believe  right  at  this  present  time  I  do  Our 

tiZ  cMfov!^  ^       "  *^  *°         *^  the  reguJa- 

Mr.  Morse.  You  have  done  that,  haven't  you? 
f>..^f  T°""^-  ?^       necessary  to  put  in  here?  I  do  not  know  who 
rJ^.rd"^ru7bu^sifeS«  to,  and  that  is  rather  a  private  question  S 

TrSe  CommissYo^  Voter*'^^""^  ^ 

«„M5"i?^f""'^-  y^''-       ^  '^""^  Whether  they  are  going  to 

publKh  It  or  not  gomg  to  publish  it.  There  has  been  a  goK)ld«^  of 
confidwjtial  tesfamony  and  letters  that  have  been  published. 
Mr.  MOKSB.  Well,  I  will  say  to  you  now,  Mr.  Morris  as  far  a« 

«5  srsi^' '  '^^^^  ^^''^  ^-  ^ 

Mr.  MoBMS.  I  think  so,  but  the  statements  given  to  Mr  Chas^ 
ZsdSZ  T'.^  the  general  undeiBtanding  tfat  those  would  b1 
canfidential  statements.    As  far  as  you  yourself  are  concerned  T 

^rnoTte^^^^  ^  "'^^^^^  ^  b^trrLl 

wif  beTuM^^^^^^^^^  say  as  far  as  I  am  concerned  now,  none  of  this 

M.^  rh^^r""' Tw     ^  ^''^^  y^''  statements  from 

Ml.  Chase.  That  is  an  accounting  propodticm  I  belinvA^n^ 
very  readily  get  those  statements.  ^  ^  J^n  can 

Mr.  Morse  Well,  we  have  them.  I  just  wanted  to  see  if  you  were 
aware  of  that  from  your  own  knowledge  ^^iz  you  were 

nftjJ^'''''^'  ^^'•^^^"^y  I  am  aware  of  it,  and  certainly  I  am  awans 
of  now  we  are  coming  out.  •-•^j  x  am  »ware 

knowledge  that  you  have  made 
SllS^T^^^     a  little  in  excess  of  the  profits  caU^  for  by  ^ 

Jir.  MoHRM.  I  do  not  say  that. 
Mr.  Mouse.  Well,  you  taow  that 

Mr.  Mcnmis.  You  can  get  what  it  is.  I  know  what  our  profits  Rr« 
"'^r^T/^''  get  what  our  profits  ai«  from  Mr.  Chad's  ™ds  ' 
.        ^Q^-  me  your  balance  ah^t  L  thTfilal  year 

ending  1917,  which  shows  total  assete  in  thousands  of  dXre^^  536 
Is  that  a  correct  statement  of  your  assets  at  that  time?  tKi^S 
IS  this:  Are  those  assete  understated,  do  you  believe!  '^'^^"^ 


MAXIMUM  PROFIT  LIMITATIOlir  ON  MEAT-PACKIKG  IXTDUSTBT.  141 


Mr.  Morris.  In  regard  to  what? 

Mr.  Morse.  Accoraing  to  the  value, 

Mr.  Morris.  The  present  value? 

Mr.  Morse.  No ;  according  to  the  value  of  your  assetaa 

Mr.  Morris.  As  teken  on  what  date? 
Mr.  Morse.  A  fair  value  of  these  assets, 
Mr.  Morris.  As  taken  on  what  date  ? 

Mr.  Morse.  Well,  taken  as  of  the  end  of  your  fiscal  year  1917. 
Mr.  Morris.  On  tJiat  value  ?  On  values  sit  that  time  ? 
Mr.  Morse.  Yes. 

Mr.  Morris.  On  replacement  values  at  that  time  ? 
Mr.  Morse.  No;  I  won't  say  on  replacement  values  at  that  time. 
Book  values. 

Mr.  Chase.  I  might  add  this  is  from  your  printed  report. 
Mr.  Morris.  If  this  is  from  our  printed  report,  those  are  our  book 
values. 

Mr.  Morse.  Those  are  your  book  values? 
Mr.  M(MBRis.  Yes. 

Mr.  Morse.  You  think  the  actual  value  is  more? 
Mr.  Morris.  As  a  replacement  basis  of  that  d^tof 
Mr.  Mobsb.  No  ;  I  don't  mean  that 

Mr.  Morris.  Well,  I  do  not  see,  unless  you  tell  me,  as  to  what  date 
or  what  replacement  value  or  what  you  mean,  how  I  can  answer  that 
question. 

Mr.  Morse.  What  do  you  mean  by  replacement  values,  Mr.  Morris? 

Mr.  Morris.  What  it  would  cost  us  to  replace  it  at  that  date. 

Mr.  Morse.  What  I  am  getting  at  is  this :  Have  you  any  other  as- 
sets that  would  increase  the  amount  as  shown  by  your  books? 

Mr.  Morris.  Will  you  state  that  question,  please? 

Mr.  Morse.  Have  you  any  other  assets  than  those  shown  by  your 
books  ?  In  other  words,  I  want  to  know  what  assets  you  have  that 
this  balance  sheet  does  not  show  ? 

Mr.  Chase.  Morris  &  Co.  has  made  a  request  for  an  increase  of 
seven  or  eight  million  dollars  in  assets. 

Mr.  Morris.  We  feel  that  we  should  be  on  the  same  basis  as  our 
competitors  in  regard  to  valuation  of  assets.  A  statement  of  what 
we  feel  should  be  included  in  our  assete  for  regulation  purposes  has 
been  made  up  by  Mr.  Timmins  and  submitted  to  Mr.  Chase.  To  the 
best  of  my  knowled^  these  assete  are  correct 

Mr.  Morse.  You  mow  nothing  as  to  the  detoil  of  these  assete  vour- 
self  ?  ^ 

Mr.  Morris.  I  have  gone  over  it  in  a  general  sort  of  way  with  Mr. 
Timmins. 
Mr.  Morse.  He  will  prove  up  those? 

Mr.  Morris.  Yes. 

Mr.  Morse.  Your  idea  is  it  is  simply  a  writing  up  of  these  book 
assets ;  is  that  what  you  mean  ? 

Mr.  Morris.  No.  I  think  it  is  putting  them  nearer  what  a  replace- 
ment basis  would  be,  and  more  in  line  with  what  is  carried  by  some 
of  our  competitors. 

Mr.  Morse.  What  do  you  mean  by  "  replacement  basis  "  ? 

Mr.  Morris.  More  in  line  with  what  it  costs  to-day.  Of  course,  we 
have  not  asked^  as  far  as  I  understand  it,  for  present  replacement, 
have  we,  Mr,  Tunmins? 


142       UAXmXJU  VBOm  UMSTATIOS  on  MBAT-PAOKma  nmusTBT. 


Mr.  TiMioKS.  We  have  our  figures  made  up  in  two  ways,  showing 
what  they  were  four  years  ago  and  what  they  would  he  on  a  replace- 
ment basis  to-day. 

Mr.  Chase.  What  is  that  $7,000,000  based  on! 

Mr.  TiMMiNs.  I  think  that  is  the  present  replacement  yalue. 

Mr.  Morse.  That  is  the  present  replacement  value? 

Mr.  TiMMiNs.  Yes. 

Mr.  Morse.  Now,  you  take  in  the  case  of  net  fixed  assets,  in  which 
yoii  show  as  of  the  end  of  your  fiscal  year  1917,  in  thousands  of 

dollars,  13,144  

Mr.  Morris.  What  is  that? 
Mr.  Chase.  $13,000,000. 

^  Mr.  Morse.  I  am  talking  of  thousands,  $13,000,000 : 1  suppose  there 
IS  land  m  that?  »     >  i 

Mr.  Morris.  Can  I  just  see  the  statement? 
Mr.  MossB.  Tes;  sure. 
Mr.  MoBSis.  Sure. 

Mr.  TncMiNS.  Yes;  there  is  land  in  that 
Mr.  Morse.  And  you  have  got  buildings  in  it? 
Mr.  Mobsis.  Yes. 
Mr.  Morse.  Machinery? 

Mr.  Morris.  Yes ;  there  will  be  some  machinery  in  that 
Mr.  M<«8e.  Does  the  land— the  cost  land  value  diow  on  your  books 
at  the  present  time  ? 

Mr.  Morris.  That  is  what  it  is  carried  at  at  present;  that  represents 

our  cost  land  values. 

Mr.  Morse.  How  long  have  you  held  this  land? 

Mr.  Morris.  I  guess  some  of  it  for  right  close  to  50  years,  some  of 
it  probably  more— a  good  deal  longer  &an  anyone  around  here  can 
remember. 

Mr.  Morse.  And  the  buildings  in  your  books  are  represented  by  the 

actual  cost  thereof  ? 

Mr.  Morris.  The  actual  cost  value,  and  of  course  we  have  a  reserve 

for  depreciation. 

Mr.  Morse.  You  have  been  writing  off  depreciation  each  year  on 
the  buildings? 
Mr.  Morris.  Yes. 
Mr.  Morse.  At  what  rate? 

Mr.  Morris.  I  think  Mr.  Timmins  could  answer  that  a  little  bit 
better  than  I  could. 
Mr.  Morse.  Well,  that  is  all  right 

Mr.  Morris.  It  shows  how  mudi  depreciation  we  have  charged  oil 
on  the  total. 

Mr.  Morse.  As  to  madiinery,  the  books  show  the  cost  value  of 
your  machinery? 

Mr.  Morris.  Less  depreciation. 

Mr.  Morse.  And  you  have  taken  depreciation  on  that  each  year? 
Mr.  Morris.  Yes. 

Mr.  Morse.  You  want  the  increase  in  your  machinery  as  well,  or 
you  figure  that  in  this  seven  millions,  did  you,  Mr.  Morris? 
Mr.  Morris.  I  presume  we  have. 

Mr.  Timmins.  Yes. 

Mr.  Whipple.  In  other  words  yon  want  to  bring  your  assets  up  to 
a  point  where  you  will  have  them  at  the  present  replacement  value 


MAXIMVM  PBOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  143 


or  the  replacement  value  prior  to  the  war,  you  want  that  replacement 
value  to  be  both  on  your  machinery  and  on  your  land — not  alona  on 
the  land  which  you  hold. 

Mr.  Timmins.  On  all  the  property. 

Mr.  Morris.  Our  total  properties. 

Mr.  Timmins.  Land,  buildings,  and  machinery. 

Mr.  Whipfub.  I  see. 

Mr.  Morris.  We  are  trying  to  get  on  what  is  an  equitable  basis 
from  the  (Government  standpoint  and  our  standpoint.  We  do  not 
feel  that  we  should  be  penalized  for  running  our  business  conserva- 
tively. 

Mr.  Timmins.  You  understand  that  there  is  absolutely  no  good 
will  or  any  such  item  in  our  assets. 
Mr.  MoRSB.  I  know  it  doesn't  ^ow  in  ymir  balance  sheet 
Mr.  Timmins.  There  is  not  any. 

Mr.  Morris.  We  feel  we  want  to  get  on  the  same  basis;  we  feel 
we  have  as  much  good  will  as  any  one  else;  we  have  nevet  consid- 
ered that  should  be  shown  as  an  asset,  but  if  it  is  shown  by  our  com- 
petitors, we  feel  we  should  be  put  on  the  same  basis. 

Mr.  Morse.  Well,  you  do  not  calculate  any  eood  will  in  this 
$7,000,000? 

Mr.  Morris.  No  •  that  is  actual  property. 

Mr.  Timmins.  No,  but  we  do  Imow  that  other  packers  

Mr.  Morris.  Have  a  good  will  account. 

Mr.  Timmins.  Have  reappraised  their  properties  and  have  got 
that  in  their  assets,  and  we  do  know  that  some  packers  have  got 
good  will  included  as  part  of  their  assets. 

Mr.  Chase.  We  have  knocked  it  out. 

Mr.  Timmins.  Well,  we  are  not  figuring  on  good  will,  if  the  othera 
did  not,  but  we  do  feel  that  we  should  have  the  appraised  value. 

Mr.  MoRitis.  We  ought  to  be  on  the  same  Imsis. 

Mr.  Timmins.  We  ought  to  be  on  an  equal  basis. 

Mr.  Morse.  I  will  say  to  you,  Mr.  Morris,  as  far  as  that  is  con- 
cerned, you  should  be  on  the  same  basis  as  the  rest. 

Mr.  Morris.  We  have  a  business  here  in  which  we  have  made  a 
good  many  improvements  each  year.  Our  business,— -practically  a 
very  small  amount  has  been  taken  out  of  the  business;  personally 
from  my  personal  standpoint,  it  does  not  make  very  much  difference 
what  I  make  out  of  it.  We  want  to  make  enough  money  so  we  can 
keep  our  buildings  up,  keep  the  organization  up,  and  we  feel  we  have 
to  be  on  the  same  basis  as  our  competitors,  to.  have  an  opportunity 
to  make  the  same  amount  of  money. 

Mr.  Morse.  Have  you  had  an  appraisal  made  of  your  property 
on  which  you  have  based  this  increase  of  $7,000,000  on  your  plant  t 

Mr.  Morris.  Yes,  sir. 

Mr.  Morse.  "Who  made  that  appraisal? 

Mr.  Morris.  Who  was  that,  Mr.  Timmins? 

Mr,  Timmins.  Coats  &  Burchard  Co. 

Mr.  Morse.  When  was  this  appraisal  made,  Mr.  Morris? 

Mr.  Morris.  Two  or  three  months  ago,  about  that  time,  I  don't 
know  exactly. 

Mr.  Morse.  And  what  were  the  values  used  by  them? 

Ml*.  Morris.  I  think  it  is  given  under  two  values.  One  the  basis 
of  Itf  17,  wa^'t  it,  Mr.  Tunmms  I 


144 


MAXIMtnt  PROFIT  LIlflTATIOK  OV  UMMMAOKiaQ  VStpVWSXt. 


Mr.  TiMMiKs.  Yes;  <Hie  for  1918,  and  one  for  1917. 

Mr.  MoBSE.  What  was  the  dilerenoe  in  the  yalnalimi  as  arrived 

at  by  these  appraisers  in  1914  and  1917? 

Mr.  TiMMiNS.  In  the  neighborhood  of  $2,000,000. 
Mr.  MoRBis.  $3,000,000,  wasnt  it,  Mr.  Timmins? 
Mr.  Timmins.  In  the  neighborhood  of  $SK/MXMK)0. 
Mr.  MoRSi.  1917  was  $2,000,000  morel 
Mr.  Timmins.  Yes,  about  that. 

Mr.  Morse.  Have  you  had  any  appraisals  made  of  your  property 

prior  to  1914? 

Mr.  Morris.  I  do  not  think  we  have;  no,  we  have  never  had  an 
appraisal  of  the  property  until  this  one  just  made. 

Mr.  Morse.  Do  you  own  a  plant  in  Argentina? 

Mr.  Morris.  Does  the  Federal  Trade  want  to  know  that?  That 
has  no  bearing  on  our  regulations;  we  are  not  being  regulated  on 
outside  interests. 

Mr.  Morse.  Well,  it  probably  would  not  be  inclnded  in  any  rate 
fixing,  but  as  a  s^iend  view  of  ;|^our  assets  

Mr.  Mossis.  We  have  not  included  aaTthing— we  have  not 
Ringed  any  assets  in  that  regard,  Mr.  Timmins,  as  I  understand  it. 

Mr.  TiMiONS.  No;  the  plant  in  Argentina  is  not  shown  on  our 
books.  It  is  on  the  woks  of  the  Morris  Beef  Co.  (Ltd.),  of  London. 

Mr.  MoRBis.  I  believe  it  would  have  absolutely  no  bearung  for  your 
work,  would  it,  Mr.  Chase? 

Mr.  MoRSE.  Only  in  a  general  way. 

Mr.  Chase.  Simply  a  general  balance  sheet  brought  down,  it  would 

be  ill  class  3,  unregulated. 
Mr.  Mouse.  How  was  that  plant  buUt  and  paid  for  in  the  Argen- 

tme?  ^ 

Mr.  Morris.  That  was  before  I  was  in  the  business. 

Mr.  Morse.  Was  it  paid  for  out  of  the  profits  of  the  business,  or 
were  securities  issued  in  some  way? 

Mr.  ^loRRis.  That  was  before  I  was  in  the  business,  Mr.  Morse. 

Mr.  Morse.  Mr.  Timmins,  are  you  familiar  with  that? 

Mr.  Timmins.  It  was  paid  for  

Mr.  M<»8E.  You  need  not  answer  now  if  you  desire  to  look  it  up. 

Mr.  TiMMONs.  It  was  ^d  for  by  the  London  house. 

Mr.  M<»tsi&.  Well,  the  Xiondon  house  paid  for  it  out  of  earnings, 
or  surplus,  did  they  not?   There  were  no  securities  issued! 

Mr.  TncMOKS.  No  securities  issued?  That  is,  you- mean  bonds 
now? 

Mr.  Mouse.  Bonds  or  stock? 
Mr.  Timmins.  No  bonds  issued. 

Mr.  Morse.  Paid  for  out  of  the  sofplus  ol  MomB  A  Co.  ? 

Mr.  TiMMONs.  Yes. 

Mr.  Morse.  Morris  &  Co.,  New  York? 

Mr.  Timmins.  No;  it  was  Morris  Beef  Co.  (Ltd.),  of  London. 
Mr.  Morse.  Morris  Beef  Co.  (Ltd.),  of  Xx>ndon? 

Mr.  Timmins.  Yes. 

Mr.  Morse.  Do  you  mean  to  say  to  me,  Mr.  Morris,  that  the  actual 
cost  value  of  the  lands  50  years  ago  remained  on  your  books  with 
no  writing  up  of  the  values? 

Mr.  Morris.  Absolutely. 


MAXIMUM  PROFIT  LIMITATION  ON  MJEAT-PAOKING  INDUSTRY.  146 


Mr.  Timmins.  Not  a  dollar. 

Mr.  Morris.  Not  a  dollar. 

Mr.  Morse.  And  the  same  with  the  buildings? 

Mr.  Morris.  Absolutely. 

Mr.  Morse.  You  have  of  course,  charged  to  the  buildings  any 
additicms? 

Mr.  Morris.  We  have  charged  investments  with  any  buildings 
and  then  taken  off  depreciation  against  them  from  year  to  ^ear. 
You  see  what  I  mean  I  If  we  ino^ease  our  bulidings,  why,  it  is 
a  permanent  improvement,  we  charge  it,  but  we  ti^  <^  year  by 

year  depreciation  against  it. 

Mr,  Chase.  May  I  ask  if  your  depreciation  rate  has  been  on  a 
definite  basis^  or  has  it  varied  according  to  good  years  and  bad 

years  ? 

Mr.  Timmins.  It  has  varied  somewhat. 

Mr.  Morse.  You  have  not  taken  off  a  uniform  rate? 

Mr.  TiMMONS.  No ;  it  has  varied. 

Mr.  Morse.  About  what  per  cent? 

Mr.  Morris.  I  guess  ours  has  been  more  or  less  arbitrary,  hasn't 
it,  Mr.  Timmins  ? 

Mr.  Timmins.  Yes ;  it  has  been  more  or  less  arbitrary. 

Mr.  Morse.  Was  that  depreciation  based  on  a  certain  per  cent? 

Mr.  Timmins.  Yes;  whenever  we  have  taken  it  it  has  been  on  a 
percentage  basis. 

Mr.  Morse.  What  is  that  percentage  basis? 

Mr.  Morris.  That  has  ymed  from  time  to  time. 

Mr.  TncMOKS.  It  hmd  yaiied.  We  have  g«me  from  nothing  up 
to  6  per  cent. 

Mr.  Mosaas.  You  see  we  have  gone  from  nothing  up  to  6  per  cent 
on  our  depreciattcm.  At  tunes  nayen't  we  a^eri^ea  more  than  6 

per  cent  ? 

Mr.  Timmins.  I  doubt  if  it  has  averaged  more  than  6  per  oenL 
Mr.  Morse.  That  is  on  buildings  alone? 

Mr.  Morris.  Yes. 

Mr.  Morse.  What  has  it  been  on  machineiy? 
Mr.  Morris.  Ten  per  cent,  hasn't  it? 

Mr.  Timmins.  The  same,  unless  there  is  a  change  right  now — that 
is,  very  recently,  within  the  last  year  or  two;  but  it  has  been,  as  I 
say — it  will  average  probably  5  to  6  per  cent. 

Mr.  Morris.  I  guess  you  understand  that  if  we  are  through  with 
any  machinery,  we  charge  that  out,  don't  we,  Mr.  Timmins  i 
Mr.  Timmins.  Yes;  absolutely. 
Mr.  Morse.  Well,  if  a  machine  is  worn  out- 
Mr.  Morris.  Yes. 

Mr.  Morse.  You  mean  to  say  you  establish  a  credit  on  your  books 
for  the  value  of  that  machine? 

Mr.  Mokrib.  What  do  yoamean? 

Mr.  Timmins.  No;  we  <&arge  that  to  depreciadim. 

Mr.  Morris.  We  charge  that  off,  if  it  is  worn  out. 

Mr.  Timmins.  If  it  is  worn  out  and  scrapped  we  charge  it  to  de- 
preciation. 

Mr.  Morse.  You  charge  it  to  depreciation? 
Mr.  Timmine.  Yes. 

lE088S-«.  Doc  UO,  06-1 — -30 


146 


Mr.  Whipple.  Well,  wouldn't  some  of  this  property,  by  this  long 
term  of  depreciation,  be  entirely  written  off  your  books? 

Mr.  Morris,  We  can  not  hardly  tell  which  ie  written  off  or  which 
is  not  We  carry  them  at  the  <»riginal  cost  and  then  we  cany  a  de- 
preciation reserve. 

Mr.  Whipple.  You  do  not  apply  it  against  the  same  property? 

Mr.  Morris.  No,  we  do  not.  We  keep  it  as  a  total. 

Mr.  Morse.  Would  you  be  satisfied  with  a  revaluation  of  your  in- 
vestment, of  your  plant  and  machinery  and  land,  say  as  of  8  or  10 
years  back  ? 

Mr.  Morris.  We  are  satisfied  with  whatever  is  fair  on  the  proposi- 
tion. The  point  I  am  trying  to  make  is  that  we  have  to  be  in  line 
with  our  competitors.  We  have  to  keep  our  business  going,  and  we 
need  lots  of  new  buildings  and  so  forth.  We  have  to  msuse  money 
to  ^t  them.  We  have  to  keep  up  to  date  to  be  able  to  compete. 

Mr.  Morse.  WdU,  I  agree  with  yon  on  that  Bnt  what  do  you 
consider  is  fair.  When  would  you  ccmsider  would  be  a  proper  time 
to  consider  the  value  of  these  ass^  of  your  buildings,  machinery, 

and  land? 

Mr.  Morris.  I  surely  would  not  think  it  would  be  fair  before  1918 
or  1914 ;  I  think  it  would  be  nearer  fair  at  the  present  date,  because 
if  a  fellow  went  into  business  at  the  present  .date,  he  would  be 
allowed  to  make  on  that  date. 

Mr.  Morse.  Wouldn't  you  think  it  would  be  more  fair  before  1914? 

Mr.  Morris.  Not  on  that  one  account 

Mr.  Morse.  On  what  account  ? 

Mr.  Morris.  That  anyone  going  into  business,  and  people  are  go- 
ing into  the  packing  business  every  day,  is  allowed  to  make  on  the 
present  basis. 

Mr.  Morse.  But  this  $7,000,000  increase  was  based  on  the  present 
1917  valuations? 
Mr.  Morris.  Yes.  sir. 

Mr.  Morse.  At  tne  present  time  you  do  not  ooiifflder  that  on  ac- 
count of  the  small  valuation  of  vour  plant  that  you  are  on  a  com- 
petitive basis  with  some  of  the  other  ocmoems  1 

Mr.  Morris.  No. 

Mr.  Morse.  You  do  not  feel  thatt 

Mr.  Morris.  No.  We  feel  sure  in  our  own  minds,  that  we  are  not. 
We  do  not  think  we  ought  to  be  penalized  f    keeping  our  rtcorda 

conservatively. 

Mr.  Morse.  Mr.  Morris,  you  are  familiar  with  this  article  2  

Mr.  Morris.  I  would  have  to  glance  over  it. 

Mr.  Morse.  Page  2  of  the  United  States  Food  Administration, 
meat  division.  Rules  and  Regulations. 
Mr.  Morris.  I  would  have  to  glance  over  it.   Section  If 
Mr.  Morse.  Yes. 
Mr.  Morris.  Yes. 

Mr.  Morse.  You  notice  that  the  business  is  divided  up  into  classes; 
there  is  class  1,  class  2,  and  class  3? 
Mr.  Morris.  Yes,  sir. 

Mr.  Morsb.  And  on  class  1  you  are  allowed  a  profit  of  9  per  csntf 
Mr.  UamB.  Yes. 

Mr.  MonsE.  And  that  9  per  cent  is  based  upon  the  inTeetment  in 
the  particular  lines  that  enter  into  diss  1  f 


MAXIMUM  FBOFIT  mOXAXlOH  OF  MBAaSPAOlOKQ  tSUmnXt.  147 

Mr.  Morris.  Yes. 

Mr.  Morse.  Do  your  books  show  the  capital  investment  in  class  1  ? 
Mr.  Morris.  I  think  Mr.  Timmins  has  determined  that,  with  Mr. 

Chase's  help,  from  our  books. 

Mr.  Timmins.  Yes ;  I  think  that  can  be  determined. 

Mr.  Morris.  It  is  something  that  had  never  been  done  before.  We 
had  never  had  occasion  to  separate  it  before  this  regulation  came  into 
effect. 

Mr.  Morse.  But  your  books  

Mr.  Morris.  I  think  for  all  practical  purposes  it  is  carried. 
Mr.  Timmins.  Our  books  are  kept  in  such  a  way  that  you  can  do  it. 
Mr.  Morse.  But  your  books  do  not  state  that  on  the  face  of  it  ? 
Mr.  Timmins.  Well,  that  could  be  answered  yes  and  no.    You  can 
determine  from  our  books  that  information. 
Mr.  Chase.  That  is  you  have  got  it  by  each  department. 
Mr.  TaasxNB.  By  departments. 

Mr.  Chase.  You  can  accumulate  the  departments  by  classes. 

Mr.  Morris.  You  can  decide  whether  the  departments  are  in  or  out. 

Mr.  Morse.  But  your  books  do  not  show,  talking  strict  accounting 
now,  Mr.  Timmins,  your  books  do  not  show  the  actual  investment  in 
each  class  of  business,  classes  1,  2,  and  3,  without  some  figuration  to 
arrive  at  the  amounts  that  you  think  are  invested  in  those  different 
classes  of  businesses. 

Mr.  Timmins.  You  have  to  do  some  little  figuring  on  the  buildings, 
for  instance,  but  you  can  determine  that,  I  think,  fairly  accurately. 

Mr.  Morse.  But  there  is  nothing  on  the  books — those  special  ac- 
counts on  the  books  do  not  show  the  investment  divided  into  these 
three  classes? 

Mr.  Timmins.  No  ;  it  would  not  show  plainly  on  the  books,  under 
the  headings  of  these  three  classes,  but,  as  I  say,  the  accounts  are 
kept  so  that  with  very  little  trouble  

Mr.  Morse.  But  there  is  no  c^>ecial  account  that  shows  this  on  your 
bookst 

Mr.  Timmins.  No. 

Mr.  Morse.  As  I  ^understand  it,  Mr.  Timmins,  you  have  to  divide 
your  products  up  into  classes  and  your  books  ^ow,  for  instance, 
against  cattle  killing,  there  is  so  much  investment,  and  a^inst 
dieep  killing  there  is  so  much  investment,  and  you  have  to  total  it  up? 

Mr.  Timmins.  And  that  can  be  readily  done,  and  I  think  it  can  he 
fairly  done. 

Mr.  Morse.  But  it  is  done  on  a  basis  that  you  have  determined  or 
that  you  think  is  fair? 
Mr.  Timmins.  Yes.   Of  course,  the  machinery  would  be  actual. 
Mr.  Morse.  Yes. 

Mr.  Timmins.  The  only  things  you  would  have  to  divide  would 
be  (he  pens,  and  you  can  do  that  on  a  square-foot  basis. 

Mr.^  Morris.  The  stock  is  a  big  part  of  our  business ;  our  inventory 
is  a  big  part  of  our  business,  and,  of  course,  that  is  actual. 

Mr.  Timmins.  The  stocks  are  actual. 

Mr.  M(»tRi8.  If  you  look  mer  our  resources  and  liabilities  state- 
ment ypu  will  find  that  our  buildings  are  a  comparatively  small  part 
of  our  assets. 

Mr.  Timmins.  Still,  you  can  divide  the  buildings  on  an  area  basas; 
get  at  it  Yeiy  nearly  actuaL 


148 


XAXIlftTM  FROnr  LIMITAIIOH  OK  MSAT-PAGKHrO  IND178IBT. 


Mr.  Moms.  In  other  words,  it  is  more  or  less  of  tn  estdmate! 

Mr.  MoBBis.  I  would  bkj  it  was  more  or  less  lustual. 

Mr.  TiMMiKS.  I  diould  say  it  was  more  or  less  actaaL  Ftat  in- 
stance, Mr.  Morse,  let  ns  say  nere  is  a  building  with  loor  floors. 

Mr.  MoRSB.  Oh,  J  can  see,  Mr.  Tinunins,  how  you  can  do  it. 

Mr.  TiMMiNS.  You  have  a  department  on  each  floor;  you  can  di- 
Tide  the  value  of  the  building  into  four  parts,  or  if  you  have  eight 
departments,  each  one  occupying  either  naif  a  floor,  or  two-thirds 
of  a  floor,  or  three-quarters  oi  a  floor,  you  can  arrive  very  nearly  at 
the  exact  value  of  the  investment  in  that  particular  department. 

Mr.  Morse.  Well,  an  estimate,  Mr.  Timmins,  may  be  very  near 
and  it  may  be  very  far  apart,  but  that  don't  alter  the  fact  that  this  is 
an  estimate,  does  it? 

Mr.  Timmins.  Well,  I  would  not  call  it  an  estimate.  You  know 
that  you  have  a  building  with  so  many  floors  in  it  and  you  know  how 
many  square  feet  are  used  for  each  department.  I  would  hardly  take 
that  as  an  estimate.  I  think  that  is  pretty  near  actual. 

Mr.  Morse.  I  think  I  will  have  to  refer  you  to  the  Standard  Dic- 
tionary as  to  the  definition  of  the  word  "  estimate." 

Mr.  Chase.  I  would  like  to  ask  one  question,  Mr.  Timmins :  Does 
this  investment  by  departments  really  appear  on  your  books  as  an 
integral  ^art  of  the  accounting  system  or  is  it  mofe  a  statisdcal  reo- 
inrd  that  is  carried  along  side  by  side! 

Mr.  TiMMiNB.  It  is  part  of  our  regular  bookkeeping  or  accounting 
system. 

Mr.  Chasb.  The  total  inTcelmfliit  by  dqpartmentst 
Mr.  TiMMiKS.  Yes. 

Mr.  Morse.  Yon  made  those  changes  in  your  books  at  the  time  these 
regulations  were  put  out,  November  1,  dia  you,  Mr.  Timmins  t 

Mr.  Timmins.  >Vhich  changes? 

Mr.  Morse.  The  change  of  your  books  over  from  the  basis  on 
which  you  formerly  ran  them,  so  as  to  run  them  on  the  basis  accord- 
ing to  these  regulations  here? 

Mr.  Morris.  It  did  not  mean  much  change. 

Mr.  Timmins.  I  do  not  think  there  has  been  much  change. 

Mr.  Morris.  It  was  just  a  case  of  giving  them  the  information  they 
wanted,  that  the  books  already  showed,  getting  it  up  in  the  form  Mr. 
Chase  wanted. 

Mr.  Morse.  Well,  class  2^  the  estimate  as  to  the  investment  in  class 
1, 1  suppose  is  the  same  as  m  class  8t 
Mr.  TIMMINS.  Yes. 

Mr.  Mxmsm.  And  class  8  is  unrestricted.  Do  you  fed,  Mr.  Morris, 
that  it  would  help  and  senre  ita  purpose  better  if  the  whole  busi- 
ness was  regarded  as  one  dass,  rather  tnan  to  be  divided  up  into  three 
classes? 

Mr.  MoBBis.  No ;  I  do  not. 

Mr.  MossB.  Why  not? 

Mr.  Morris.  Because  there  are  certain  departments  there  where 
our  competitors  arc  unrestricted — are  unrestricted,  and,  therefore, 
we  are  not  allowed  to  make  what  is  the  natural  profit  in  the  business 
and  they  are,  and  they  can  increase  their  facilities  and  increase  their 
business  so  much  faster  than  we  can. 

Mr.  Morse.  Suppose  your  competitors,  all  of  you,  are  put  on  the 
same  basis,  suppose  instead  of  having  the  business  divided  up  into 


MAXIMUM  PBOFIT  LIMITATION  ON  M£AT-PACKINO  INDUSTBY. 


149 


three  classes,  that  the  net  worth  or  net  investment  should  be  consid-  . 
ered,  and  a  certain  per  cent  allowed  to  you  on  that? 

Mr.  Morris.  Well,  in  that  case  do  you  mean  that  a  butterine  fel- 
low, for  instance,  would  be  on  the  same  basis — a  fellow  that  is  simply 
manufacturing  butterine! 

Mr.  MoBSB.  No;  I  am  talking  now  about  the  meat  packers  as  a 
whole. 

Mr.  Morris.  Well,  I  ^ess  you  did  not  get  my  point,  Mr.  Morse. 
At  the  present  time,  as  1  understand  it,  a  fellow  simply  manufactur- 
ing butterine,  and  some  of  our  biggest  competitors  are  not  iii  the 
packing  business  at  all,  and  unlimited  in  regard  to  profits.  I  do  not 
believe  it  would  be  fair  to  limit  us  and  not  limit  them,  and  to  limit 
them  on  the  basis  that  you  would  probably  feel  would  be  fair  for  beef 
and  pork,  I  do  not  think  would  be  fair  for  the  butterine  people. 

Mr.  Morse.  Personally  you  would  rather  see  these  regulations  con- 
tinued in  the  present  form — the  business  divided  into  three  classes? 

Mr.  Morris.  Well,  that  is  pretty  hard  to  say  until  we  get  your 
other  proposition. 

Mr.  Morse.  Well,  I  will  say  to  you,  Mr.  Morris,  that  I  do  not  know 
as  there  will  be  any  other  proposition. 

Mr.  Morris.  You  are  simply  asking  me  if  I  would  rather  have  it 
as  it  is  than  something  indefinite? 

Mr.  Morse.  We  are  simply  investigating  to  see  what  recommenda- 
tion should  be  made. 

Mr.  Morris.  I  think  we  have  to  be  in  such  a  shape  that  our  com- 
petitors, not  in  the  same  line  of  business — ^that  we  won't  be  regulated 
out  of  business  and  that  they  are  not.  I  think  we  have  to  be  in  shape 
to  make  as  much  money  as  our  competitors  do,  if  we  are  to  stey  m 
the  business. 

Mr,  MoRfflB.  Who  do  you  mean  by  competitors? 

Mr.  McMoixs.  I  said  the  butterine  people,  for  instance.  Hie  biggest 
manufacturer  of  butterine  is  Mr.  Jelke.  He  makes  more  ihait — I 
guess  more  than  any  packer. 

Mr.  TiMMiKS.  He  is  the  biggest  manufacturer,  including  the 
packers. 

Mr.  Morris.  I  do  not  believe  it  would  be  fair  to  allow  us  a  small 
amount  on  butterine  and  allow  him  to  make  what  he  wants.  I  have 
no  objection  to  him  making  it  at  all,  but  I  think  we  ought  to  be  in 
line  to  compete. 

Mr.  Tator.  Mr.  Morse,  may  I  ask  a  question  there  ? 

Mr.  Morse.  Certainly. 

Mr.  Tator.  This  has  often  occurred  to  me,  Mr.  Morris :  Supposing 
the  five  big  packers  in  the  butterine  business  were  regulated  in  their 
profits,  wouldn't  that  make  all  the  other  fellows  in  the  business,  out- 
side of  the  packing  business,  fall  in  line  and  sell  lower?  Wouldn't 
it  affect  them  practically  indirectly  and  require  them  to  regulate 
their  profiiB? 

Mr.  Morris.  It  has  some  tendency  to  do  it ;  how  great  the  t^dency 
would  be,  I  do  not  believe  anyone  could  tell  without  it  being  tried; 
I  do  not  believe  it  would  be  100  per  cent  or  anywhere  near  it. 

Mr.  Tatchc.  You  do  not  think  the^r  would  get  away  with  any  such 
profits  as  would  seriously  affect  you  in  that  business!  Wouldn't  you 
haye  the  advantage  of  selling  lower,  at  the  lower  profits? 


Mr.  Morris.  No  ;  I  do  not  see  how  a  person  can  be  regulated  and 
have  an  advantage. 

Mr.  Tator.  You  would  do  more  business.  You  would  have  an 
advantage  in  some  respects. 

Mr.  Morris.  We  could  do  that  if  occasion  warranted  anyhow,  if 
We  were  not  regulated. 

I  think  there  is  one  point  in  this  packing  business  that  most  people 
do  not  appreciate,  and  that  is  the  necessity  of  the  packer  making 
money  in  order  to  keep  his  equipment  and  his  other  things  up.  I 
think  that  is  an  awftuly  important  thin^  from  the  Gk>yemment's 
standpoint  Our  bosinfiss  is  rather  exceptional  that  wa^r.  We  pay 
▼err  small  dividends,  and,  of  course,  from  that  standpoint  it  don% 
make  much  dilmnoe  to  me  personally.  My  income  won't  be  much 
more  if  we  have  a  good  year  or  if  we  don't.  I  do  like  to  have  a  good 
year  because  I  like  to  have  first-class  plants,  and  I  guess  all  of  the 
packers — know  we  haya  m  lot  ol  old  huildings  that  we  oiurht  to  va- 
place. 

Mr.  Morse.  Mr.  Morris,  your  business  has  increased  to  a  large  ex- 
tent over  1914, 1915,  and  1916  i  It  has  been  increasing  right  along, 

hasn't  it? 

Mr.  MorriiS.  Yes,  sir. 

Mr.  Morse.  To  what  extent  has  it  increased,  about  ? 

Mr.  Morris.  I  hope  our  sales  will  be  at  least  60  per  cent  more  than 
ihey  were  in  1913,  this  year. 

Mr.  Morse.  You  have  had  to  make  a  lot  of  additions  to  your  plant, 
hayen't  you  ? 

Mr.  MoBRis.  Yes,  sir. 

Mr.  MomsE,  To  take  care  of  this  increase! 
Mr.  Mossn.  Yes;  we  haye  had  to  make  a  good  many  additions. 
Mr.  MoBSE.  And  these  additions  haye  crowded  you  quite  some, 
hayenttheyf 

Mr.  Morris.  In  what  way? 

Mr.  MoKSE.  Well,  you  take  before  your  business  increased  so 
rapidly^  you  had  pkntj  of  q>aoe  for  doing  the  business  you  haye 
been  domg? 

Mr.  Morris.  I  have  never  seen  a  packer  that  had  plenty  of  space, 

regardless'  of  how  big  their  plant  was.  A  packing  house  is  a  very 
elastic  proposition.  They  say  you  have  room  for  so  much  and  when 
you  need  it,  you  usually  have  room  for  a  little  more,  and  if  you  liad 
half  as  much,  you  would  be  crowded. 

Mr.  Morse.  Tliis  increase  in  business  has  crowded  you  a  great  deal? 

Mr.  Morris.  We  are  crowded. 

Mr.  Morse.  So  you  can  not  operate  as  efficiently  as  you  could  if  you 
had  more  space,  is  that  true  ? 

Mr.  Morris.  I  think  that  is  correct;  with  more  space  we  would 
haye  more  inyestment,  howeyer. 

Mr,  MoBSB.  Yes;  that  is  tme.  In  other  words,  if  you  were  going 
to  build  a  plant  now,  you  would  build  it  much  different  from  this 
plant  and  naye  more  space,  and  haye  things  more  oonyenientiy  ar- 
ranged, and  more  efficiently  arranged?  - 

l£r.  MoBBis.  That  would  depend  upon  how  much  money  I  wanted 
to  spend. 

Mr.  MoBsa.  Suppose  you  wanted  to  spend  enough  money  to  take 
care  of  your  present  business,  you  would  build  an  entirely  different 
plant,  wouldn\  you  ?   I  mean  so  far  as  arrangements  are  concerned  i 


llAXWt^li  ^tmtt  UMITUCEIQS  OSr  M&AX-PAOKJUia  USDU&mY.  151 


Mr.  Morris.  We  are  very  fortunate  in  that.  We  would  probably 
make  some  adjustments,  but  practically  all  of  our  land  is  together; 
we  are  not  spread — we  have  a  hog  house  near  the  hog  pen,  because  we 
do  not  have  as  far  to  drive  for  our  hogs,  which  we  feel  is  an  ad- 
vantage ;  outside  of  that  one,  all  of  our  stuff  is  together,  practically. 

Mr.  Morse.  You  can  make  more  money  and  operate  at  less  cost 
if  you  had  a  plant  that  was  more  conveniently  arranged,  couldn't 
you? 

Mr.  Morris.  I  suppose  there  would  be  a  number  of  minor  improve- 
ments. I  think  our  Chicago  plants  are  possibly  the  most  conveni- 
ently arranged  of  any,  just  because  it  so  happened  that  we  haye  had 
our  space  together.  You  see,  outside  of  one  comer  up  here,  we  own 
from  this  comer  down  here  a  square  from  here  up  to  Forty-fifth  and 
Ashland. 

Mr.  MoBSB.  You  can  manufacture  your  product  on  land  that  is 
worth  $100  an  acre  as  well  as  you  could  on  land  that  is  worth  a 
thousand  dollars  an  acre,  couldn't  you? 

Mr.  MoBBis.  That  depends  on  the  location  of  the  land. 

Mr.  MoBSE.  Land  that  is  conveniently  located  ? 

Mr.  Morris.  I  do  not  know  where  you  would  find  any  oonyeniently 
located  land  at  any  such  figures  as  that. 

Mr.  Morse.  I  say  outside  of  Chicago  somewhere  ? 

Mr.  Morris.  No  ;  you  would  have  to  be  near  the  stockyards. 

Mr.  Morse.  Well,  suppose  the  stockyards  were  outside  of  Chicago? 

Mr.  Morris.  Well,  you  have  got  your  labor  situation  there.  It  is 
certainly  a  big  advantage  to  be  in  a  big  city  from  a  labor  stand- 
point. 

Mr.  Morse.  Don't  you  think  your  labor  would  come  to  you  ? 

Mr.  Morris.  I  think  we  would  have  trouble.  I  think  people  are 
coming  to  labor,  rather  than  labor  coming  to  them,  recently. 

Mr.  Morse.  Other  industries  have  had  that  experience,  where  tiiey 
have  erected  their  plants  away  from  big  cities,  and  never  had  any 
trouble  in  getting  labor. 

Mr.  MoBBis.  I  belieye  all  industries  are  having  trouble  in  getting 
labor  at  the  present  time.  I  belieye  it  is  easier  to  get  labor  in  big 
cities  than  out  in  the  country  at  the  present  time.  I  think  if  there  is 
a  surplus  of  labor,  it  does  not  matter  very  much  where  the  work  is, 
the  labor  will  find  the  work,  but  where  there  is  a  scarcity,  it  is  pretty 
near  up  to  the  industry  to  find  the  labor.  I  think  there  are  a  good 
many  advantages  Chicago  has  oyer  a  country  point,  from  a  packing- 
house standpoint. 

Mr.  Morse.  Well,  isn't  the  district  here,  the  packing-houso  dis- 
trict, overcrowded  at  the  present  time  ? 

Mr.  Morris.  We  have  got  plenty  of  space ;  I  don't  suppose  we  are 
built  on  over  a  half  or  two-thirds  of  the  space. 

Mr.  TiMMiNS.  Probably  two-thirds. 

Mr.  Morse.  You  have  space  for  further  enlargement? 

Mr.  Morris.  Yes. 

Mr.  Morse.  If  you  have  to  enlar^  your  plant? 
Mr.  MoBBis.  Oh,  yes ;  we  could  mcrease  our  plant  at  least  50  per 
cent  on  the  space  we  have. 
Mr.  Morse.  And  still  operate  it  efficiently  and  conveniently? 
Mr.  Morris.  Yes. 

Mr.  MoBSB.  Without  increasing  your  expense? 


l&S     XAxntUM  PKonr  ZiOoiisiair  oir  MBASMPAComro  ijiiiumi. 


Mr.  Morris.  Well,  that  would  be  a  pretty  hard  thing  to  m^;  in 
a  general  sort  of  way  I  would  say  yes. 
Mr.  MoBSB.  Without  an  undue  proportion? 

Mr.  MoRBis.  In  a  general  way  without  an  undue  proportion.  Of 
course  most  of  our  increase  has  been  replacements  and  buildings  for 
by-products  and  different  ways  of  handling  things.  We  are  not 
killing  any  more  cattle  in  CmcagQ  to-day  Sian  we  were  20  years 
ago ;  probably  not  as  many. 

Mr.  Morse.  Mr.  Morris,  have  you  any  statistics  that  would  show, 
say  during  the  first  six  months  of  1918,  when  the  time  comes, 
would  you  have  any  figures  for  that  period  or  any  other  period, 
showing  the  total  numW  of  cattle  killed  and  the  total  number  of 
calves? 

Mr.  Morris.  By  us? 

Mr.  Morse.  Yes. 

Mr.  Morris.  Yes. 

Mr.  Morsr;  The  total  number  of  ilieep  and  hogs  and  every- 
thingf 

l£.  Morris.  We  could  get  up  those  figures. 

Mr.  Morse.  Did  you  ever  get  up  any  figures  of  that  kind? 

Mr.  Morris.  We  have  a  number  of  times,  something  similar  to 
that.  For  instance,  not  long  ago  the  hide  department,  the  leather 
industry  down  in  Washington,  wanted  some  of  those  figures  and 
we  got  up  some.  I  do  not  believe  it  would  be  just  the  figures  you 
call  for,  but  the  same  general  line  of  figures. 

Mr.  Morse.  Mr.  Timmins,  could  you  get  up  for  us  a  set  of  fig- 
ures, say  from  November  1,  1917,  to  May  1,  showing  the  total 
cattle  slaughtered,  total  calves  slaughtered? 

Mr.  Morris.  In  Chicago,  do  you  mean  ? 

Mr.  Morse.  Yes;  all  your  business,  all  over,  except  that  in  for- 
ei^  countries;  the  total  cattle,  calves,  pigs,  sheep — in  fact,  all 
-  animals  slaughtered ;  could  you  give  us  that? 
Mr.  Timmins.  Yes. 

Mr.  Morse.  Could  you  also  give  us  

Mr.  Morris.  I  could  give  you  the  amount  of  hogs  in  five  min- 
utes if  you  want  the  hogs,  t  suppose  you  want  the  whole  propo^ 
ffltion? 

Mr.  Morse.  I  want  them  all.  Could  you  give  us  tlutt  informa- 
tion, in  six-month  periods,  say  for  1918,  1914,  1915,  and  1916; 
would  it  be  much  work  for  you  to  do  that? 

Mr.  Timmins.  No;  not  if  we  have  it  back  readily  that  far;  we 
could  ffive  it  to  you  very  quickly;  that  is,  it  is  not  a  big  job. 

Mr.  Morris.  At  the  time  we  could  give  you  any  of  those  figures. 
I  don't  know  how  far  back  we  keep  our  records. 

Mr.  Timmins.  That  is  the  proposition. 

Mr.  Morse.  It  would  be  an  interesting  proposition  if  we  could 
get  it.  You  can  see  why  it  would. 

Mr.  Chase.  Yes;  I  think  Wagoner  on  Statistics  would  give  that. 
The  sheets  you  are  sending  in  now  have  that  for  the  corresponding 
months. 

Mr.  Timmins.  Yes. 

Mr.  Morse.  Maybe  those  figures  are  compiled  somewhere. 
Mr.  Timmins.  Well,  if  they  are,  we  shall  have  them. 


Mr.  Chasr.  We  have  a  good  part,  ri^t  in  our  office. 

Mr.  Morse.  Mr.  Morris,  in  this  increased  valuation  of  some  seven 
million  dollars,  do  you  propose  or  do  you  want  to  capitalize  that? 

Mr.  Morris.  That  is  a  matte'r  that  has  not  been  determined. 

Mr.  Whipple.  Now,  Mr.  Morris,  your  increase  in  assets,  they  have 
increased  tremendoudy  in  the  last  year  or  so ;  do  you  expect  all  those 
increases  to  be  paid  out  of  the  earnings  of  the  business?  For  in- 
stance, if  you  build  a  new  plant,  you  have  to  have  a  new  plant  for  the 
sake  of  operating  your  business,  do  you  anticipate  building  that  all 
out  of  your  earnings,  or  do  you  intend  to  get  outside  capital  in  or 
invest  more  capital  yourself? 

Mr.  Morris.  We  have  no  plains  for  refinancing  at  the  present  time. 

Mr.  Whipple.  Then  everything  you  did  build  or  any  improve- 
ments you  did  make  in  your  yards,  or  enlargements  

Mr.  Morris.  Of  course,  we  borrowed  considerable  money ;  we  have 
in  the  past,  as  you  will  see  if  you  look  over  our  statement. 

Mr.  Whipple.  Well,  I  understand  that,  but  isn't  that  borrowed 
money  largely  for  thejpurpose  of  working  capital? 

Mr.  Morris.  Well,  I  do  not  see  how  yon  can  draw  the  fine  very 
well. 

Mr.  WmFFu:.  Well,  the  point  is,  is  it  vour  intuition  that  any  new 
additions  to  the  plant  should  come  out  of  the  earnings! 

Mr.  Morris.  I  think  it  will  have  to. 

Mr.  Morse.  That  is  where  you  want  it  to  come. 

Mr.  Morris.  I  think  it  will  have  to;  I  don't  know  where  the  money 
would  be  raised  otherwise. 

Mr.  Morse.  Wouldn't  it  be  possible  to  raise  money  for  it  by  the 
flotation  of  stocks  or  bonds? 

Mr.  Timmins.  You  see,  very  largely  these  new  buildings  would  be 
replacements,  writing  oft  one  old  building  and  building  a  new  one 
in  its  place. 

Mr.  Whipple.  Yes;  but  you  are  increasing  your  capital  all  the 
time. 

Mr.  Morris.  Very  often,  as  in  the  town  of  St.  Louis,  we  have  just 
put  up  a  building  costing  us  around  a  million  dollars.  I  guess  it  will 
cost  us  over  that,  and  it  replaced  a  building  costing  us  a  quarter  of 
a  million  or  $200,000  originally.  Now,  it  had  practically  the  same 
capacity;  it  had  a  few  improvements  in  it,  but  m  a  general  sort  of 
way  the  old  building  would  have  answeied  the  same  purpose,  but 
it  wore  out. 

Mr.  Whifpcb.  Tour  d^ieciation  was  not  sufficient  to  diarge  that 
off? 

Mr.  Morris.  It  covered  what  we  charged  off,  but  did  not  cover  the 
r^lacement  value.  That  has  been  our  trouble.  It  used  to  be  if  we 
spent  a  million  dollars  in  a  year,  we  would  have  five  or.  six  good 
buildings.  Now  a  million  dollars  does  not  build  anything. 

Mr.  Morse.  That  is,  from  the  point  of  keeping  your  plant  at  the 
same  capacity.  Now,  if  you  increase  the  capacity  of  your  plant,  I 
mean  to  say  where  you  get  in  a  position  where  you  can  turn  out  more 
meat  

Mr.  Morris.  If  we  could  get  uniform  run  on  our  present  facilities 
we  could  increase  our  capacity  immensely. 
Mr.  Morse.  I  do  not  get  that. 


154       llAimttt  PBJOWt:  LUdTAHOir  ok  MSAt-jPACKINO  IKDUSTEt. 


Mr.  MoBRis.  If  we  had  a  uniform  run,  we  could  handle  more  stock 
oa  thepresent  capacity. 
Mr.  MOBfflB.  In  other  words,  your  run  is  seasonable. 
Mr.  TnauNS.  Spasmodio. 

Mr.  MoiKis.  Not  only  seasonable  bal  then  are  ups  and  downs. 

Mr.  Chase.  Two  days  in  the  week  are  heavy? 

Mr.  MosBis.  They  have  tried  to  change  that  We  have  fair  runs 
three  or  four  days,  out  the  weeks  won't  correspond. 

Mr.  MmusE.  When  is  the  busy  season,  if  you  have  one? 

Mr.  Morris.  On  cattle  in  tha  fall,  probably  Septembeor  and  Octo- 
ber and  November. 

On  hogs,  probably  November,  December,  and  January. 

On  sheep,  along  in  October  and  November  probably. 

On  calves,  in  the  spring. 

Mr.  Whipple.  In  other  words,  your  plant  is  partly  idle  some  of  the 

time  ? 

Mr.  Morris.  It  is  not  idle  but  we  could  increase  our  gang.  You 
take  at  the  present  time  we  have  a  gang  that  will  kill  2,000  hogs  in 
eight  hours  in  our  hog  house;  we  could  kill  in  the  same  house  prob- 
ably 4,000  or  4,200. 

Mr.  Whipple.  Then  in  other  words,  no  matter  how  much  you 
increase  the  business,  it  is  not  necessary,  except  for  the  purpose  of 
renlaoement,  to  increase  ^e  size  of  your  plant? 

Mr.  Miosis.  In  certain  departments  we  have  had  to,  at  different 
times* 

Mr.  MoBSm.  In  those  certain  departments  you  have  had  to  add 
additional  space;  do  you  expect  those  to  be  paid  out  of  earnings? 
For  instance,  if  you  erect  some  new  department,  some  entirely  new 
department  for  taking  care  of  by-products,  do  you  expect  that  to  be 
paid  out  of  the  earnings? 

Mr.  MoBBis.  At  the  present  time  it  would  have  to  be  paid  out  of 
earnings. 

Mr.  TiMMiNs.  Yes;  because  that  is  not  material  as  compared  with 

the  balance  of  the  business. 

Mr.  Morse.  Then  there  has  been  no  material  increase  in  the  fixed 
assets  of  your  business?  That  is,  I  mean  to  say,  in  land,  buildings, 
and  machinery? 

Mr.  Morris.  Not  compared  to  our  earnings.  We  have  each  year 
been  able  to  make  an  increase  in  our  business  a  good  deal  more  than 
our  fixed  assets — increase  in  fixed  assets. 

Mr.  Morse.  Is  that  true  of  1914  as  compared  to  1915,  '16,  and  '17  ? 

Mr.  MoBBis.  We  have  kept  a  bigger  percentage  of  earned  money  in 
omr  business  each  year,  I  think. 

Mr.  MoBSB.  But  yon  have  not  had  to  malse  any  large  investnmt 
mi  aooonnt  of  this  big  increase  in  business  in  these  years? 

Mr.  MoBaaa,  We  Imve  had  to  make  some  increases.  We  have'^had 
to  increase  our  canning,  for  instance,  and  we  have  had  to  make  some 
increases  that  way,  but  in  a  general  way  the  big  part  of  it  is  replace- 
ments. 

Mr.  MoRSB.  How  much  do  you  think  such  increases  amounted  to 

in  dollars? 

Mr.  Morris.  I  should  say  that  80  per  cent  of  our  fixed  assets  is 
replacement  each  year,  wouldn't  you,  Mr.^Timmins? 


MAXIMUM  noWST  UMTSATrnV  OH  MBA!i^PA<nmiQ  IHDU»XnT. 


155 


Mr.  TiMMiNS.  Yes;  I  think  so;  take  it  from  year  to  year. 

Mr.  Morse.  Isn't  that  pretty  large? 

Mr.  Morris.  I  should  cover  that.  I  have  not  looked  over  our  state- 
ment now,  but  I  think  jthat  i£h— you  will  find  those  figures  fairly  con- 
servative. 

Mr.  Whipple.  Now,  you  have  stated  that  you  thought  this  basis 
of  computing  the  rate  on  the  investment  was  a  good  one ;  that  is,  I 
mean  to  say,  as  laid  down  in  the  rules  and  regulations,  that  the  busi- 
ness should  be  divided  into  three  classes,  and  that  you  should  be 
given  the  benefit  in  your  by-products  department  of  the  same  rate  of 
return  that  anybody  else  was  getting.  In  other  words,  in  class  3  

Mr.  Morris.  Let  me  put  it  this  way :  I  feel  that  we  have  to  be  put 
on  a  competitive  basis. 

Mr.  Whipple.  Yes;  that  is,  all  you  want  is  justice,  as  far  as  other 
people  are  concerned. 

Mr.  MoBRlB.  Yes;  and  not  only  justice  in  what  we  make,  but  in 
order  to  enable  us  to  keep  in  business  and  keep  our  plant  up  in  first- 
class  shape  and  replace  buildings  whenever  necessary. 

Mr.  Morse.  It  is  very  necessary. 

Mr.  MoRBis.  It  is  mighty  necessary  to  our  Government  at  the  piea 

ent  time. 

Mr.  Whipple.  Now,  you  have  considerable  bcnrrowed  money 

vested  in  your  business  at  the  present  time? 
Mr.  Morris.  Yes;  because  our  borrowed  money— we  always  hav« 

an  inventory  higher  than  our  borrowed  money. 

Mr.  Whipple.  Yes;  but  that  is  true,  you  have  a  oonsiderafaie 
amount  of  borrowed  money  in  your  business? 

Mr.  Morris.  Yes ;  a  tremendous  amount. 

Mr.  Whipple.  Do  you  believe  that  borrowed  money  is  entitled  to 
the  same  return  that  your  own  investment  in  tiie  business  is? 

Mr.  Morris.  I  do. 

Mr.  Morse.  Why,  Mr.  Morris? 
^  Mr.  MoBBis.  Any  time  you  borrow  money,  you  are  taking  bigger 
risks;  if  you  take  bigger  risks,  you  are  entitled  to  bigger  returns. 
That  is  so,  isn't  it?  ~ 

Mr.  MoBSE.  That  is  economically  true. 

Mr.  MoRHis.  It  has  always  been  so,  that  a  fellow  that  could  safely 
borrow  more  money  could  make  more  money  on  it. 

Mr.  Morse.  What  risk  are  you  taking,  Mr.  Morris!  What  hazard! 

Mr.  Morris.  Well,  for  instance,  a  bank  won't  renew  our  loan& 
We  are  not  liable  to  that,  as  much,  because  we  always  keep  ourselvos 
in  such  shape  that  we  are  able  to  handle  ourselves;  but  if  a 
should  refuse,  a  person  would  have  to  find  the  momsy  and  either  pay 
a  higher  rate  or  sell  some  stock. 

Mr.  MoBSE.  But  there  is  very  little  chuioe  of  a  bank  calliM  your 

loans. 

Mr.  Morris.  Not  while  our  credit  is  in  the  shape--not  on  Moms's 

credit. 

Mr.  Morse.  Your  credit,  though,  is  first  class. 
Mr.  Morris.  Absolutely. 

Mr.  Morse.  So  there  really  is  not  any  danger  of  that. 
Mr.  MoRBis.  We  won't  borrow  any  money  while  we  feel  there  is 
any  danger. 


186       MAXIMUM  PBOFIT  UMITATION  OK  MEAT-PACKIHQ  IKDUSTBY. 


Mr.  Morse.  You  have  got  sufficient  assets,  and  your  credit  standing 
is  such  that  you  could  borrow  most  any  amount  of  money  that  is  re- 
quired to  run  your  business ;  that  is  true,  isn't  it? 

Mr  Morris.  I  don't  know. 

Mr.  Morse.  You  have  never  experienced  any  difficulty,  have  you, 
in  a  normal  money  market? 

Mr.  MoBBis.  Well,  do  jou  call  this  a  normal  money  market? 

Mr.  Mourn.  Why,  cmisidering  that  we  are  at  war;  yea. 

Iffie.  MoKRis.  I  would  not  want  to  borrow  much  more  money  than 
we  are  borrowing  at  the  presmt  time. 

Mr.  MoBSB.  TtkBt  is  through  your  own  caution,  thought  Ton 
could  if  yon  wanted  to. 

Mr.  MoRBis.  Well,  you  can  not  tell  mitil  you  try* 

Mt,  MoBSB.  You  haven't  tried? 

Mr.  Morris.  No.  We  haven't  gone  out  and  asked  "Will  any  one 
lend  us  $100,000,"  or  anything  like  that. 

Mr.  Morse.  What  are  the  hazards,  extraordinary  hazards  that  this 
business  may  have,  over  that  of  other  businesses  of  a  similar  char- 
acter ? 

Mr.  Morris.  Well,  the  most  important  one  is  that  we  are  handling 
a  perishable  product.  Our  product  is  worth  just  what  we  can  get 
for  it.  There  is  not  any  standard  market  on  the  proposition.  We 
have  products  down  at  branch  houses  and  we  have  to  sell  it. 

Mr.  Morse.  What  makes  the  market? 

Mr.  Morris.  Supply  and  demand.  We  always  have  to  carry  so 
much  product  on  hand.   It  is  very  hazardous  at  these  prices. 

Mr.  Morse.  You  do  not  have  any  products  spoil  on  you,  do  you? 
Your  refrigeration  is  perfect?  You  have  been  in  this  business  a 
kmg  time. 

Mr.  MoBBis.  In  a  general  way  I  would  say  that  is  so.  It  would 
be  remarkable  how  fittle  product  does  spoil,  and  most  of  the  stuff 
that  does  spoil  is  due  to  delay  in  transit  or  some  such  cause  as  that. 

Mr.  McmsB.  You  have  had  very  little  of  that? 

Mr.  McMttOL  Practically  nothing. 

Mr.  TiMMiNS.  Even  without  spoiling,  it  will  deteriorate,  it  will 

depreciate. 

Mr.  Morris.  We  will  send  a  car  of  beef  to  New  York ;  it  is  delayed 
a  few  days  in  transit;  the  beef  is  better  to  eat.  You  take  the  beef  I 
eat,  it  is  beef  that  has  been  a^ed  a  little,  and  yet  it  has  a  di&rent 
appearance,  and  they  buy  it  cheaper. 

Mr.  Mobsb.  I  know;  biit  the  beef  is  not  spoikil,  there  is  no  loss 

there? 

Mr.  Morris.  Yes ;  there  is  a  loss.  They  buy  it  a  couple  of  cents  a 
pound  less  than  if  it  was  fresh  beef. 

Mr.  TiMMiNs.  As  Mr.  Morris  says,  it  may  be  better  for  eating. 

Mr.  Morris.  From  an  eating  standpoint  I  would  rather  eat  it. 

Mr.  TiMMiNS.  Its  general  appearance  is  such  that  people  won't 
buy  it. 

Mr.  Morse.  Well,  you  people  know  it  is  liable  to  do  that.  It  has 
happened  heretofore  right  along? 

Mr.  Morris.  There  is  no  margin  of  business  to  take  care  of  it. 

Mr.  Mobsb.  It  has  not  hap^n^  any  more  lately  than  in  the  past  ? 

Mr.  Morris.  Don't  get  me  in  a  place  where  I  have  to  criticise  our 
railroad  direction. 


^         MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTW.  157 

•  Mr.  Morse.  You  can  do  it  if  you  want  to.  They  say  just  criticism 

is  helpful. 

Mr.  Morris.  We  have  had  more  trouble  than  we  «ver  had. 
Mr.  Morse.  You  have  had  trouble  lately! 
^  Mr.  MoBBis.  Yes. 

Mr.  Mobsb.  To  what  extent?  . 

Mr.  MoBBis.  I  should  say  this  last  year  is  the  worst  year  we  om^ 
ever  had  in  that  connection. 
^  Mr.  Morse.  How  much  has  it  increased,  m  per  cent? 

^  Mr.  Morris.  I  could  not  give  you  that  without  %urea 

Mr.  MoRSB.  Just  an  idea  about  it? 

Mr.  Morris.  It  is  almost  impossible  to  check  the  figures,  because 
as  we  say,  there  is  no  set  market  for  any  product.  Something  coming 
in  a  little  late,  it  will  sell  at  a  quarter  less;  I  can  not  tell  whether  it 
y       was  sold  at  a  quarter  less  because  it  was  a  little  off— not  spoiled,  but 
just  old,  and  it  has  not  /jrot  the  appearance— or  whether  it  is  poor 

quality.  _  .  i  ,  i. 

Mr.  Morse.  Well,  outside  of  present  conditions  caused  by  the  war 
and  transportation  facilities,  there  are  no  hazards  in  your  business 
}        worth  mentioning,  are  there?  ,      ,  . 

Mr.  Morris.  Oh,  yes ;  I  think  it  is  the  most  hazardous  business  in 
the  world. 

Mr.  Morse.  Why  so  ? 

Mr.  MoBBis.  Why,  at  the  present  time  we  have  n^ot,  say,  60,000,000 
>       pounds  of  pork  on  hand.  That  is  liable  to  go  down  a  cent  a-pound 

^Mx^ixmoL  I  know,  but  isnt  that  the  ordinary  risk  of  the  business! 
Mr.  MoBBis.  That  is  an  unusual  hazard. 
Mr.  MoRSB.  That  is  a  risk  of  the  business. 
\^  Mr.  WHzms.  Have  yon  any  uninsurable  risks  that  you  could  not 

insure  ? 

Mr.  MoBBis.  You  could  not  insure  your  stock  against  going  down 
in  value. 

Mr.  Whipple.  I  do  not  mean  against  fluctuation  in  value. 

Mr.  Morris.  It  is  the  most  fluctuating  market  in  the  world. 

Mr.  Whipple.  I  mean  outside  of  fluctuations  in  market  value. 
We  can  throw  that  out  of  this  case  altogether.  Are  there  any  unin- 
surable risks  outside  of  fluctuations  in  market  value ;  all  your  plants 
and  machinery  are  insurable? 

Mr.  Morris.  Yes. 
i  Mr.  Whipple.  And  your  stock  on  hand  is  insurable! 

Mr.  Morris.  Yes. 

Mr.  TiMMiNS.  Not  against  depreciation. 
Mr.  Whipple.  No;  not  against  that. 
Mr.  MoBBis.  Against  fire,  it  is. 
*\  Mr.  Whifflb.  It  is  against  fire! 

Mr!  Whifflb.  You  have  no  tremendous  hazards  sndi  as  somt 

.  other  businesses  have  ? 

V  >  Mr.  MoRBM.  I  think  it  is  the  most  hazardous  business  in  the  world. 

Mr.  Whipfle.  You  mean  from  a  speculation  standpoint? 

V  Mr.  TiMMiNS.  Every  standpoint. 

7  Mr.  Morse.  You  mean,  Mr.  Morris,  the  hazard  is  confined  princi- 

pally to  the  fluctuation  in  the  market? 


0 


158        MAXIMUM  PROFIT  LIMITATION  ON  MBAT-PAOKINO  IKDOTTBY. 


Mr.  Morris.  Yes ;  and  say  the  demand  is  going  to  be  

Mr.  Morse.  There  is  no  other  hazard  but  that! 

Mr.  MoKRis.  You  take  pork  at  the  present  tune ;  that  pork  is  goinff 
to  be  sold  next  fall.  We  dont  know  whether  it  is  going  to  be  sold 
higher  or  lower.  If  there  is  a  panic  and  hard  times,  people  don't 
have  money  to  buy  it.  If  there  are  a  lot  of  people  in  the  Army  they 
don^  use  as  much  in  the  Army  as  in  civilian  life  and  it  cuts  off  a 
large  demand.  If  we  do  not  nave  boats  to  ship  stuff  to  England, 
we  do  not  know  what  we  will  do  with  it.  It  is  a  business  that 
changes  every  day,  and  to  me  it  is  the  most  hazardous  business  I 
know  of.  It  is  certainly  tiie  most  hazardous  business  I  am  interested 
in. 

Mr.  Morse.  From  your  standpoint  the  hazard  is  simply  in  the 
fluctuation  of  prices,  and  not  from  any  other  cause?  It  is  a  staple 
business  with  no  liazard  whatever. 

Mr.  Morris.  No ;  I  do  not  agree  with  you. 

Mr.  Morse.  Except  the  fluctuation  in  prices. 

Mr.  Morris.  No ;  it  is  a  perishable  product  in  the  first  place.  The 
product  when  bought  is  to — you  take  beef  now,  you  can  freeze  a  cer- 
tain amount  of  beef,  but  ordinarily  there  is  no  demand  for  frozen 
beef.  With  this  war  on,  it  is  a  special  condition:  there  are  certain 
grades  thnt  we  can  not  slaughter  and  freeze;  ordinarily  if  we  buy 
Uie  cattle  we  have  to  sell  the  stuff  at  the  best  prices  we  can  get;  we 
can  ^et  only  a  figure  much  less  than  the  replacement  price;  we  mow 
that  It  is  being  sold  too  cheap,  but  we  have  to  sell  it. 

Mr.  Morse.  But  on  account  of  perfect  refrigeration  

Ifr.  M(»mis.  Mr.  Morse,  ordinarily  you  can  not  sell  frozen  beef; 
carcass  beef,  in  this  coimtiy ;  there  are  no  exports  to  Europe.  At  the 
present  time  the  freezers  are  pretty  well  filled  up.  Very  often  we  hit 
a  bad  market  and  we  would  like  to  freeze  stuff  and  we  know  we  could 
get  our  money  out  of  it.  We  would  like  to  freeze  it  and  keep  it.  We 
can  not  get  freezers  for  it.  In  that  case  our  branch  houses  have  to 
keep  the  product  chilled  and  not  frozen. 

I  do  not  know  whether  you  realize  that  our  domestic  beef  business 
is  done  on  a  chilled  basis  and  not  frozen  at  all.  That  is  strictly  per- 
ishable, and  it  simply  has  to  be  sold,  that  is  all ;  it  is  very  often  sold 
at  a  good  deal  loss  than  replacement  or  any  prospect  of  replacement. 

Mr.  Morse.  That  is  the  only  thing  you  term  a  hazard  of  the  busi- 
ness? 

Mr.  Morris.  No  ;  I  think  that  anyone  that  has  Uieamooiit  of  money 
borrowed  that  any  packer  has,  is  running  a  hazardous  faiudneaB  in 
itself. 

Mr.  Ghasb.  Tou  are  not  subject  to  changes  in  fq^hion  that  some 
businesses  are.  Tou  are  not  snbiect  to  destructive  explosions  like  the 
Dupont  Powder  Co. 

Mr.  McmRis.  Well,  we  have  been  verv  fortunate  that  way.  Of 
course,  packers  have  had  lots  of  fires  ana  bad  fires,  and  this  is  a  war 
industry.  It  is  essential  to  the  war  and  we  hope  for  the  best  in  the 
future. 

Mr.  TiMMiNs.  All  of  those  things  are  insurable? 
Mr.  Whipple.  Those  are  all  insurable  risks. 
Mr.  Morse.  You  are  insured,  Mr.  Morris,  covering  everything  that 
ia  insurable? 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  159 

Mr.  Morris.  I  question  if  we  are  insured  on  all  explosions. 

Mr.  Morse.  You  are  insured  on  everything  where  you  can  get  in- 
surance, is  that  true? 

Mr.  MoBBis.  S<Hne  of  our  insurance  we  carry  ourselves.  We  could 
insure  on  all  explosions,  I  suppose ;  I  doubt  very  much  if  we  do. 

Ifo.  TncMiNB.  We  do  not  insure  from  exglomooa. 

Mr.  Mouse.  Do  you  carry  your  own  inmuraaoe  or  insure  in  the  regu- 
lar line  fire  insurance  companies? 

Mr.MoBsis.  Bol^;  at  times  we  carry  our  niarine  insimnoe,  certain 
parts  of  it. 

Mr.  Morse.  That  is,  covering  stock;  covering  your  product  in  the 
process  of  shipment  abroad  to  foreign  countries? 
•  Mr.  Morris.  Yes. 

Mr.  Whipple.  Now,  Mr.  Morris,  you  stated  you  believe  that  bor- 
rowed money  should  have  the  same  rate  of  return  as  your  own  in- 
vestment. Now,  what  is  your  average  cost  of  borrowing  money  to 
you? 

Mr.  Morris.  At  the  present  time? 

Mr.  Whipple.  Yes. 

Mr.  Morris.  I  suppose  a  little  over  6  per  cent — 6 J  per  cent. 
Mr.  TiMMiNS  Yes ;  it  will  run  up  close  six  and  a  half  per  cent. 
Mr.  Whifpijb.  Well,  now,  could  you  cover  that  borrowed  money 
by  a  bond  issue? 
Mr.  MoBRis.  We  have  a  bond  issue. 

Mr.  Whutub.  Well,  I  mean  bv  another  bond  issue,  by  an  addi- 
tional bond  issue  ?   Would  there  be  any  risk  there  ? 
Mr.  MosBiB.  If  we  did  it  would  oobI  us  more  than  six  and  a  half 

per  cent  at  the  present  time. 
Mr.  MoBSE,  How  is  that? 

Mr.  MosRSB.  I  just  base  it  on  the  experience  of  some  of  our  com- 
petitors. 

Mr.  MoBSE.  There  is  a  legitimate  reason  why  it  should;  I  wuited 

to  see  what  your  idea  is. 

Mr.  Morris.  Because  the  market  is  higher  than  that;  money  is 
worth  more  than  six  and  a  half  to-day. 

Mr.  Morse.  You  would  have  to  sell  the  bonds  at  a  discount? 

Mr.  Morris.  A  6  per  cent  bond — decidedly. 

Mr.  Morse.  How  much  discount  do  you  think  you  would  have  to 
sell  it  at? 

Mr.  Morris.  That  is  a  matter  of  just  personal  opinion. 

Mr.  Morse.  I  would  like  to  get  your  personal  opinion. 

Mr.  Morris.  I  would  say  somewhere  between  90  and  92. 

Mr.  Morse.  I  would  like  to  buy  some  of  your  boi^  at  92. 

Mr.  Whipple.  Now,  considerable  of  ^rour  capital  in  your  bumneas 
is  represented  by  the  accumulated  earnings,  as  shown  by  your  sur- 
plus account? 

Mr.  MoBBis.  Practically  all  of  it  is. 

Mr.  Whipple.  Do  you  consider  that  those  accumulated  earnings 
are  entitled  to  the  sune  rate  of  retom  as  your  wginal  investmeot 
in  the  business? 

Mr.  Morris.  Certainly. 

Mr.  Whipple.  In  other  words,  in  the  original  investment,  where 
you  take  a  big  chimce  in  starting  np  somt^tJimg  new,  you  think  that 


180     MAxiifiTM  PBom  umTAxioir  oir  MBiMAOKmo  ummmY. 


M5S 


should  be  given  the  benefit  of  only  the  sune  letum  as  jonr  present 
kmslBient^  where  the  biisinesB  is  in  en  asswed  eanmllion^  where 
your  market  is  established! 
Mr.  MosBBi«  I  do  not  believe  any  paddng  bnsinesB  is  in  an  aasued 

eondition. 

Mr.  Whiffle.  In  other  words,  you  think  there  is  some  danger  in 
the  packing  business  ^ing  downf 

Mr.  Morris.  We  have  a  lot  of  stock  that  is  hi^-prioed  stock; 
what  is  going  to  happen  after  the  war  I  don't  know. 

Mr.  Whipple.  You  believe  you  are  entitled  to  a  profit  on  your 
borrowed  money  by  reason  of  taking  that  risk  ? 

Mr.  Morris.  As  a  maximum  profit,  I  do;  I  feel  that  a  maximum 
should  be  over  a  guaranteed  profit.  You  have  got  everything  to 
lose  and  nothing  to  win  on  a  maximum. 

Mr.  Morse.  How  much  profit  do  you  believe  you  are  entitled  to 
on  borrowed  money?    What  per  cent? 

Mr.  Morris.  I  do  not  quite  get  your  question  on  that. 

Mr.  McttSE.  I  say.  how  maA  profit  on  borrowed  money  do  "you 
think  YOU  are  entitled  tof  What  per  cent  abo^e  the  cost  of  the 
money  1 

Mr.  Morris.  So  far  as  myself,  personally,  if  I  did  not  figure  I 
could  make  4  or  5  per  cent  on  it,  I  wonld  not  take  the  re^Kmsibility 
and  hazard  of  it. 

Mr.  Morse.  Four  or  five  per  cent  above  its  cost? 

Mr.  Whippm).  Take  it  at  6  per  cent,  you  are  paying  ^  per  cent; 
that  would  make  llj  per  cent  on  your  borrowed  money;  then  you 
feel  the  borrowed  money  you  have  in  class  1  should  bring  11  per  cent 
instead  of  9? 

Mr.  Morris.  As  I  understand,  that  ranges  according  to  what  we 
pay  for  our  money.  Isn't  that  correct,  Mr.  Chase  ? 

Mr.  Whipple.  Yes ;  I  understand  there  is  a  provision  in  there  that 
takes  care  of  the  extra  excess. 

Mr.  Chase.  The  excess  over  5  per  cent? 

Mr.  Whipple.  The  excess  over  5  per  cent.  In  other  words,  you 
agree  with  the  regulation  on  that  score! 

Mr.  Morris.  Oh,  yes;  I  think  there  has  to  be  a  regulation  <m  that 
score.  Otherwise,  ror  the  vaomv  then  is  ki  it,  I  w<mld  not  want  to 
borrow  the  money  and  take  tiie  hazard. 

Mr.  Whippi*e.  Well,  from  your  line  of  testimony  all  the  way 
through,  I  take  it  that  you  believe  that  the  rate  of  return  should  oe 
governed  by  the  amount  of  capital  in  your  business  and  not  on  your 
net  worth  in  the  business  ?  In  other  words,  that  you  are  entitled  to  a 
return  on  all  your  assets? 

Mr.  Morris.  I  do  not  see  that  it  matters  very  much  where  you  get 
your  assets,  as  long  as  you  get  them. 

Mr.  Whipple.  Your  net  investment  in  the  business  you  figure 
would  have  nothing  to  do  with  the  return  at  all  ? 

Mr.  Morris.  No.  If  I  can  operate  a  business  with  less  net  invest- 
ment and  borrow  money  when  I  need  it,  I  am  taking  that  much  big- 
ger risk  and  I  am  entitled  to  that  much  greater  return  of  profit.  Isn't 
that  correct,  Mr.  Morse? 

Mr.  Morse.  Economically;  yes. 

Mr.  Mobris.  Practically,  isnt  that  correct! 


MAmiUK  FBOFIT  UMrrATION  OK  JCEAT-PAGKING  INDUSTRY.  161 


Mr.  Whipple.  That  is  what  we  want  to  get  your  ideas  on.  There 
are  all  sorts  of  ideas  on  that  subject. 

Mr.  Morris.  I  do  not  see  how  else  they  could  figure  it,  personally. 

Mr.  Morse.  Well,  when  I  stated  "economically,"  Mr.  Morris,  1 
meant  to  qualify  the  matter  a  little  by  the  consideration  that  the 
packing  industry  is  a  pretty  well  established  business  and  it  is  my 
personal  opinion  you  would  have  no  trouble  in  getting  all  the  capi- 
tal you  wanted. 

Mr.  Morris.  I  do  not  believe  that  is  haadly  a  fair  statement  of  the 
condition  of  the  packing  industry. 

Mr.  Morse.  Mr.  Morris,  you  practically  have  said  that  there  is  no 
hazard  in  the  packing  industry  except  that  which  you  claim  comes 
tiirough  ^rice  fluctuation^  Can't  you  think  of  where  you  have  made 
losses,  uninsurahle  losses,  some  time  in  the  past? 

Mr.  Morris.  I  can  think  of  quite  a  number.  I  can  remember  of 
two  floods  that  we  have  had. 

We  have  been  without  water  at  our  plants  and  have  had  to  dose 
them  down  teim>orarily  on  that  account. 

Mr.  Morse.  That  is  not  serious,  though,  is  it?  Your  close-doifcTi 
was  of  very  short  duration  ? 

Mr.  TiMMiNs.  The  floods  at  Kansas  City  and  East  St.  Louis  were 
very  disastrous  to  us. 

Mr.  Morris.  Last  winter  we  were  without  salt,  or  a  sufficient 
amount  of  salt,  for  quite  some  time. 

Mr.  Morse.  What  do  you  call  "quite  some  time"? 

Mr.  Morris.  Off  and  on  for  some  two  months.  It  sounds  foolish, 
doesn't  it? 

Mr.  Morse.  I  am  frank  to  say  I  do  not  call  that  an  extraordinary 
risk  of  the  business.  That  is  only  one  of  the  incidents  incidental  to 
the  business;  something  you  can  provide  against  by  laying  in  a  stock 
of  salt. 

Mr.  Morris.  It  is  something  we  have  never  had  come  up  before. 
Mr.  Morse.  But  in  case  of  a  flood,  where  you  have  had  losses,  that 
might  be  considered. 

Mr.  Morris.  Mr.  Morse,  if  a  packer  carried  enough  inventory  on 

hand  for  all  his  supplies  there  would  not  be  money  enough  in  the 
world  to  carry  his  business.  Last  winter  was  the  first  time  wj  had 
an  insufficient  amount  of  salt  It  is  something  you  could  not  antici- 
pate. 

Mr.  Morse.  When  was  it  you  had  losses  through  floods  ? 
Mr.  Morris.  About  1906  and  1907. 

Mr.  TiMMiNS.  We  had  two  floods  in  Kansas  City,  one  about  1904, 
it  seems  to  me,  and  another  several  years  later;  I  don't  just  remember 
the  date. 

Mr.  Morse.  How  much  did  you  lose  in  1904  through  this  flood! 
Mr.  TiMioKS.  The  first  one  was  not  as  heavy  as  the  last 
Mr.  MoRsi.  How  much  was  it? 

Mr.  TiMMiNs.  Oh,  it  might  have  run  up  close  to,  say—in  that  par- 
ticular flood,  $50,000.  I  think  the  next  one  would  be  very,  very  much 
in  excess  of  that ;  I  am  not  sure  of  the  figures. 

Mr.  Morse.  How  much? 

Mr.  TiMMiNs.  I  would  say  it  had  run  over  $100,000.  We  had  the 
same  trouble — that  is,  we  had  a  flood  in  Sa^t  St.  XipiQS, 
13eS8S—S.  Doc.  110, 66-1  ^IX 


162 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-FACKINQ  INDUSTRY. 


Mr.  Morse.  What  year  was  that? 

Mr.  TiMMiNS.  I  am  not  sure  of  the  years  of  these  floods. 

Mr.  Morse.  How  much  do  you  think  you  have  lost  there  ? 

Mr.  TiMMiNs.  I  should  think  that  would  run  up  to  $100,000,  too. 

Mr.  Whipple.  You  have  no  hazard  such  as  where  they  have  staad- 
ing  timber,  uninsurable,  and  a  fire  in  that  timber  maj  cause  th«ni  a 
ma  of  three  or  four  or  five  milli<Hi8  of  ^^kifs-^Huythuiff  likie  tliat  to 
provide  against 

Mr.  Chase.  Mr.  Morris,  is  a  pronounced  liiouglit  an  extoaiordiliary 
hazaid  in  the  business? 

Mr.  Morris.  That  makes  a  verv  bi^  run  of  unfinished  cattle  for 
the  time  being,  and  means  that  the  plant  in  the  vicinity  where  the 
drought  is,  the  country  tributary  to  that  plant  has  been  cleaned 
out.  The  plant  has  nothing  to  operate  on  afterwards.  We  have  had 
that  experience  at  a  number  of  our  plants. 

Mr.  Chase.  In  a  case  of  that  kind  how  much  w  ould  you  lose  ? 

Mr.  Morris.  I  do  not  see  how  you  can  say  very  well.  You  take 
our  Oklahoma  plant,  it  has  probably  been  averaging  killing  4,000 
hogs  a  week. 

Mr.  Tim M INS.  Yes. 

Mr.  Morris.  It  could  kill  16,000  just  as  well.  How  much  we  are 
losing  on  that  it  is  pretty  hard  to  say. 

Mr.  Morse.  You  are  losing  the  overhead  and  profits,  that  is  all  you 
lose ;  you  don''t  lose  any  assets. 

Mr.  Morris.  We  do  not  lose  any  assets,  but  our  organization  has  to 
go  on  just  the  same. 

Mr.  TiMMiNS.  You  are  losing  your  surplus. 

Mr.  MoBBis.  Our  expense  is  just  the  same. 

Mr.  Morse.  You  lose  in  overhead  ftnd  prints  and  in  nothing  else. 

Mr.  TiMMiNS.  You  make  an  absolute  loss  on  account  of  it. 

Mr.  Morse.  Naturally,  but  the  loss  is  confined  to  that. 

Mr.  Whipfub.  Wouldn't  the  drought  be  reflected  in  increased 
prices  ? 

Mr.  TiMMiNS.  Not  necessarily.  The  drought  might  not  happen  at 
other  places,  but  the  plant  is  operating  and  we  would  have  an  abso- 
lute loss.   You  do  not  make  it  up  anywhere. 

Mr.  Whipple.  In  other  words,  you  figure  the  idle  time  in  your 
plant  is  a  material  factor  to  you  ? 

Mr.  TiMMiNS.  Oh,  yes. 

Mr.  Whipple.  Not  alone  with  respect  to  the  overhead,  but  in  the 
unevenness  in  the  runs  of  cattle  which  you  stated  to  me  in  the  begin- 
ning. 

Mr.  TiMMiNS.  It  is. 

Mr.  Morse.  In  case  of  a  shutdown  in  any  particular  locatity  you 
would  discharge  those  workmen  and  lay  them  off  9 

Mr.  M<«sis.  Suppose  you  can.  A  plant  built  for  3,000  or  4,000 
hc^  a  day  can  not  economically  run  on  400  or  600  a  day. 

Mr.  MossB.  So  you  would  not  make  much  loss  on  labor, 

Mr.  MoBKis.  Yea  You  would  make  an  immense  loss  on  labor. 
It  costs  you  twice  as  much  to  kill  800  or  400  a  day  as  to  kill  8,000  or 
4,000. 

Mr.  MmiRis.  That  comes  in  on  your  overhead. 
Mr.  MoBflBi  From  a  Iftbor  slandpopifti' 


MAXIMUM  PROFIT  ummtotm  m  nuT-F^OKora  nnnjsTBY.  168 

Mr.  Morris.  Your  overhead  expenses  on  account  of  the  small 

ifillin^. 

Mr.  Morse.  Your  overhead,  as  I  have  been  trying  to  point  out, 
does  not  inchide  your  labor.  You  have  two  points;  the  overhead  in- 
eludes  your  general  supervision,  etc.  Your  labor  includes  what  is 
actually  paid  to  those  men  doing  the  work. 

Mr.  Morris.  Vou  luive  depreciation  on  your  plant  just  the  same. 

Mr.  Morse.  That  is  part  of  the  overhead;  the  labor  I  do  not  think 

is. 

Mr.  Morris.  And  your  machinery? 
Mr.  TiMMiNs.  Insurance. 

Mr.  Morse.  Insurance  and  things  of  that  kind.  You  do  not  have 
^V^y  JOVLT  laJbor  because  you  discharge  them. 

Mr.  MoBKM.  You  do  not  pay  them  any  more  per  hour;  it  actually 
costs  you  twice  as  much  for  the  labor  item  alone,  leaving  alone  your 
overhead,  wtt0i«  vou  are  working  on  a  floor  and  killing  five  or  six 
hundred  hogs  «  day  where  you  are  built  for  three  or  four  thousand, 
lou  can  not  arrange  your  men  economically  on  the  floor  to  kill 
tiiree  or  four  thousand  hogs  and  kill  five  or  six  hundrod  eocmomically. 

Mr.  Chase.  The  same  thing  applies  to  hog  cholera  «s  to  drouiditf 

Mr.  Morris.  Oh,  yes;  or  crop  failure. 

Mr.  Morse.  Now,  Mr.  Morris,  in  any  business  the  coi^  of  the  prod- 
uct manufactured  consists  practically  of  three  elements--mat^L 
labor,  and  overhead  expense.  Can  you  determine  on  that  basis  the 
cost  of  your  products  in  your  various  departments? 

Mr.  MoKKis.  I  can  determine  it  very  accurately. 

Mr.  Morse.  How  can  you  determine  that  very  accurately,  or  how 
do  you,  I  should  say,  how  do  you  determine  that  very  accurately « 

Mr.  Morris.  We  have  the  actual  cost;  that  is,  the  raw  material: 
we  have  the  actual  cost  of  it. 

Mr.  Morse.  Well,  what  is  the  actual  cost  of  your  raw  material? 
Mr.  Morris.  What  we  pjiy  for  it. 
Mr.  MoBSE.  Wliat  you  pay  for  it? 
Mr.  Morris.  Yes. 

raw  material  is  worked  up  and  ^oes 
into  various  departments  what  elements  enter  into  its  cost?  How 
do  you  mean? 

Mr.  Morris.  Let's  just  take  some  material  and  follow  it  through, 
if  you  like.  ^  ' 

Mr.  Morse.  Suppose  you  buy  a  steer  at  that  high  price  of  $17.90  I 
saw  m  the  paper  this  morning;  you  pay  your  $17.90  and  you  stort  in 

to  kill  the  steer. 
Mr.  Morris.  Yes. 

Mr.  Morse.  And  to  cut  it  up  and  distribute  it  in  your  varioiis.de. 

partments.  Now,  if  you  will  trace  for  me  the  process  that  that  steer 
will  j?o  through  and  what  is  added  into  it  in  the  way  of  cost  rifiht 
straight  through  and  how  you  determine  those  costs— I  think  you  win 
^^iiswer  it — I  think  you  will  answer  my  question. 

Mr.  Morris.  I  will  do  it,  subject  to  correction  from  Mr.  Timmins. 

Mr.  Morse.  Mr.  Timmins  can  answer  it  if  he  wants  to. 

Mr.  Morris.  He  can  probably  give  it  more  accuratelv  than  I  can 

Mr.  ilMHiNS.  The  expenses  added  would  be  based  on  the  hist 
Bumtb  or  tw<fr  br  thfoe  aonths'  period— that  is,  the  cost  of  labor  as 


164     MAxnnnc  fbofit  lAumsms  m  lOASSPAcrKim  nrmism. 

an  oTer^ftd — and  those  items  are  charged  on  a  per  hundredweight 
basis  against  the  beef  when  it  is  killed.  You  have  the  cost  of  your 
steer;  you  dress  it  and  you  probaMy  have  eO  per  omt  yield  to  it,  and 
you  allow  for  all  the  offal. 
Mr.  MoRSB.  You  add  60  ger  cent  to  it? 

Mr.  TiififiNS.  No;  there  is  60  per  cent  of  yield  of  beef,  say,  ap- 
proximately. 
J^r  IVIoRSB.  ^Tes. 

Mr.  TiMMiNs.  Now,  you  say  that  $17.50  or  $17.90  is  the  cost  of 
tho  steer. 

Mr.  Morris.  Yes. 

Mr.  TiMMiNS.  On  a  per  hundredweight  basis,  yon  have  got  to 
add  to  that  tho  cost  of  killing,  the  cost  of  chilling,  cost  of  labor;  all 
those  are  as  near  actnal  as  we  can  get  them,  based  on  what  the  ex- 
penses have  been  running  for  the  last  month  or  two. 

Mr.  Morris.  Then  I  understand  you  to  say  that  you  do  not  charge 
the  actual  cost  against  the  steer.  Suppose,  for  instance,  yoo  buy 
the  steer,  you  pay  $17.90  for  him,  and  then  thm.is  oertafai  labor 
in  killing  him,  cutting  him  up,  aM  siding  the  beef  products  from 
the  steer  to  the  various  departoienta.  Drai't  you  charge  for  that 
labor! 

Mr.  TiMMiNs.  Yes,  absolutely. 

Mr;  MossB.  Well,  how  do  you  ascertain  that  labor  charge? 

Mr.  TiMMiNS.  Right  from  the  pay  rolls;  but  you  do  not  get  that 
before  the  steer  is  on  the  mai^et.  By  the  time  you  get  all  those 
figures  together,  it  is  on  the  market  and  sold. 

Mr.  WmmJL  You  were  speaking  of  arriving  at  exactly  the 
cost. 

Mr.  TiMMiNs.  Yes. 

Mr.  Morris.  We  sell  it  for  what  we  can  on  the  market. 
Mr.  Morse.  Do  you  use  the  actual  cost,  the  money  paid,  or  some 
other  cost? 

Mr.  TiMMiNS.  The  actual  cost — the  money  paid. 

Mr.  Chase.  Don't  we  need  to  determine  first  whether  we  are  talk- 
ing of  tlio  beef  cost  or  the  test  cost? 

Mr.  Morris.  Yes,  we  ought  to:  the  test  cost  is  based  on  actual 
figures  as  they  have  been  actually  determined  in  the  last  two  or 
three  months. 

Mr.  Chase.  In  the  beef  account  you  use  the  actual  expenses  for 
that  period? 

Mr.  TiMMiNS.  Yes;  when  you  open  the  beef  account,  ytm  charge 
it  with  the  actual  cost  of  the  labor,  which  you  have  paid  out,  all 
your  expenses  as  they  come  into  the  account,  and  you  sell  your  prod- 
ucts ana  transfer  the  hides,  for  instance,  to  the  hide  account  at  mar- 
ket value. 

Mr.  MoiBW.  You  transfer  that  at  market  value? 

Mr.  TiMMiNS,  Yes;  the  difference  is  profit  or  loss  on  the  beef 
account.  In  the  actual  accounting,  getting  at  the  other  feature, 
where  you  are  trying  to  arrive  at  the  cost  of  your  beef,  where  you 
say  that  beef  ought  to  sell  at  so  much,  if  it  costs  $17.90,  you  know 
you  would  get  60  per  cent  of  that — say  a  thousand-pound  steer, 
you  would  get  600  pounds  of  beef.  Now,  you  have  got  $17.90,  or  if 
It  is  a  thousand-pound  steer,  that  would  be  $179.   Now,  tliat — ^now 


iuiiifiiMnaiisx2Mfi(nov  16< 


you  transfer  from  that  or  give  that  amount  credit  for  the  hides,  feet, 
and  offal. 

Mr.  Morse.  Now,  at  what  price? 

Mr.  TiMMiNS.  As  near  the  actual  as  we  can  get  it,  right  on  the 
market. 

Mr.  Morse.  Let  me  finish  my  question.  At  what  price  will  you 
charge  or  credit,  I  should  say,  what  price'  would  you  credit  these 
differeiit  commodities  like  the  hide  and  tallow  and  so  on  ? 

Ifi?.  TiMMiNs.  As  near  the  actual  market  as  we  can  establish  it; 
hides,  for  instance,  you.  take  the  hicbs,  there  is  an  established  price 
on  native  hides  to-oay. 

Mr.  MoKSB.  What  makes  that  price! 

Mr.  MossiB.  Right  now  the  Government  has  est  a  mazimimi  and 
we  can  get  the  maximum,  but  thm  are  trade  very  often  in  hides; 
pretty  nearly  every  day  there  are  transactions. 

Mr.  Morse.  You  make  a  profit  when  you  credit  in  these  different 

commodities  ? 

Mr.  TiMMiNs.  No;  that  is  transferred  right  at  that  nuu*ket  price. 

Mr.  Morris.  It  is  credited  to  the  beef. 
Mr.  Morse.  You  make  a  profit  there? 
Mr.  Morris.  No;  not  a  penny. 

Mr.  Morse.  Because  these  commodities  cost  you  less  than  the  mar- 
ket, do  they  not? 

Mr.  TiMMiNS.  No;  we  are  taking  the  selling  market,  you  see.  If 
we  can  sell  hides  to-day  for  28  cents,  that  is  the  price  we  would  estab- 
lish as  the  transfer  price  on  those  hides. 

Mr.  Morse.  But  you  do  not  transfer  so  many  pounds  of  hides  at 
28  cents;  you  take  28  cents  and  make  certain  deductions  for  curing? 

Mr.  TiMMiNS.  Only  for  the  curing,  and  we  try  to  make  it  actuafly 
the  expeoab  of  curing,  and  that  is  based  on  our  past  experience,  so 
your  mde  account  should  break  even  outside  of  fluotuatKnis  in  the 
market  Maybe  your  expenses  increase  or  deereaae,  but  you  will  see 
from  the  hide  account  ji]«t  about  what  it  is. 

Mr.  Morse.  You  make  a  prd&t  and  loss  there  when  yon  enMt  back 
to  the  beef  account? 

Mr.  Mobbis.  Not  until  the  stuff  is  sold. 

Mr.  TiMMiNs.  No;  you  don't  mdce  any  profit  there.   Yon  transfer 

it  at  the  market. 

^  Mr.  Morse.  You  make  a  theoretical  profit  ? 

Mr.  TiMMiNS.  No;  you  don't.  You  see,  if  you  are  taking  $17.90, 
and  credit  that  $179  with  the  hides,  fat,  and  oiOFal  at  what  you  figure 
the  market  price  to  be,  all  you  are  really  going  to  get  for  those  goods, 
and  deduct  that,  suppose  that  is  $50  or  $25— -take  out  that  $25  and 
you  have  $154  for  the  cost  of  the  beef. 

Mr.  Morse.  So  you  decrease  the  cost  of  the  beef  by  that  much  ? 

Mr.  TiMMiNs.  No;  vou  take  a  steer  costing  $179,  and  then  say  the 
hide  and  fat  and  offal  is  worth  $25  or  $30,  and  add  to  that  the  cost 
of  kMling,  say  $2.50  a  head,  and  add  the  $2.50  a  head  on  it,  and  make 
that  $156.50,  and  divide  the  $156.50  by  the  600  pounds  of  beef,  that 
will  ffive  you  the  cost  of  the  beef,  and  we  txy  to  gi^  that  just  as 
actual  as  we  possibly  can. 

Mr.  Whipple.  Now^  do  you  know  "wkitim  that  is  the  method  lol* 
lowed     all  these  meat  piekem  I 


Mr,  TiMMiNs.  I  do  not. 

Mr.  Chase.  Substantially,  yes.   I  can  answer  that. 

Mr.  Whipple.  Now,  this  market  value  of  by-productsr— with  the 
hides,  I  underatond  you  have  a  certain  maximum  on  that.  Now,  on 
the  other  by-products,  how  is  the  market  for  those  determined  ?  Is 
it  an  actual  market,  or  do  you  people  control  the  market  in  such  a 
way  that  it  is  diihcult  to  determine  the  market  value  of  that  by- 
product ? 

Mr.  Morris.  Those  things  that  are  strictly  perishable  products;, 
they  are  worth  just  what  we  can  get  for  them.  Sometimes  there  is 
a  shorta<i:e  and  a  h'\g  demand  and  prices  go  up,  and  sometimes  there 
is  a  lot  of  them  and  not  much  demand  and  prices  go  down. 
«  Mr.  TiMMiNs.  Whatever  those  market  prices  are,  and  we  can  sell 
that  product  for,  is  the  price  we  use  in  making  this  transfer. 

Mr.  Whippus.  All  these  by-products  you  could  sell  in  the  open 
mark»t1 

Mr.  TiMMiNS.  Well,  you  take  oleo— all  the  larf^r  fmducts,  you 
can. 

Mr.  Whipplr.  And  there  are  doEen»— there  are  many  people  not 
interested  in  your  business  who  are  in  that  business  of  buying 
those  things  up  all  the  time. 

Mr.  MoBSis.  You  take  oko  oil,  the  biggest  manufacturer  of  oleo- 
mar<rarine  does  not  own  a  packing  house  or  a  slaughtering  house. 

Mr.  Whipple.  Then  the  market  value  on  those  products  could 
be  very  well  established  ? 

Mr.  TiMMiNs.  On  all  those  standard  by-products,  of  course  you 
always  have  this  difficulty  to  contend  with — it  works  both  ways: 
When  you  are  taking  off  your  hide  to-day,  or  taking  off  your  oleo 
to-day,  you  establish  it  on  to-day's  market.  If  the  price  goes  down 
on  it,  that  would  be  a  loss  or  a  gain. 

Mr.  Morris.  On  a  steady  market,  if  prices  are  higher  at  the  end 
of  the  year,  they  make  the  natural  gain,  aeeording  to  how  much 
they  have  been  carrying  it  at 

Mr.  TiMMiKfl.  F^hzer  is  quite  a  big  itmn. 

Mr.  Monos.  We  only  clean  that  up  probably  once  a  year, 

Mr.  TiMMiNS.  Fertilizer  is  a  commodity  that  will  depend  on  the 
cotton  cr<^p&  If  the  cotton  crops  have  been  good  last  year,  every- 
body wants  to  buy  fertilizer.  If  you  have  had  a  poor  crop,  and 
not  much  money  down  there,  your  ammoniates  will  be  very  low. 
All  of  those  are  conditions  that  run  for  six-month  periods.  When 
you  sell  your  beef  you  establish  the  price  of  beef  to-day,  and  say 
it  has  cost  you  25  cents  a  pound,  that  is  figuring  that  those  prices 
of  by-products  will  remain  even,  but  it  is  six  months  before  you  can 
determine  that,  in  many  instances. 

Mr.  Whipple.  Mr.  Timmins,  you  know  that  accountants  do  not 
like  market  values  placed  upon  by-products  ? 

Mr.  Morris.  That  is  the  trouble  with  accountants.  They  can  not 
realize  that  we  are  handling  perishable  products,  and  it  has  to  be 
listed  for  what  it  is  worth. 

Mr.  Whipple.  Now,  do  you  think  it  would  be  possible  to  eBt^b- 
lish  a  cost  system  in  the  packing  industry,  where  the^  actual  cost 
of  each  commodity  from  a  steer  could  be  afloertained  without  using 
the  market  yaluest  - 


^       MAXIMUM  PROFIT  LIMITATIOH  OS  MBAT-PAOKiro  IHDOTlW.  MT 

k  Mr.  Timmins.  I  do  not  see  how  you  can,  for  the  fidmple  reason 

that  you  have  the  price  of  your  steer.   You  have  to  determine  what 
the  value  of  the  certain  product  is.   OrdinarUy  it  is  the  price  of 
your  beef  which  you  have.   How  are  you  gomg  to  eat^lish  the  cost 
y     of  your  hide  or  your  fat  or  fertilizer? 

Mr.  Mmum.  Mr.  Morse,  if  you  take  a  chart  that  shows,  you  will 
i  find  that  the  per  cent  you  get  for  your  hide,  compared  to  your 
^  total  cost  of  beef ,  will  vary  very  materially  in  different  years,  and 
the  same  is  true  with  your  fertilizer  and  your  pork ;  different  cuts 
^      one  year  are  sometimes  high;  one  year  hams  are  high  and  bellies 
are  low ;  the  other  year  bellies  are  high  and  hams  are  low. 

Mr.  Morse.  I  am  willing  to  be  enlightened  on  that  proposition. 
Mr.  Morris.  There  is  not  any  direct  ratio  between  the  different 
products.    They  are  perishable  products.    You  can  not  say  that 

V  bellies  are  worth  2  cents  more  than  hams. 

Mr.  T1.MMINS.  I'eoples'  tastes  change.  I  remember  25  years  ago 
when  I  came  into  the  packing  business — ^it  has  been  more  than 
that— hams  sold  at  quite  a  premium  over  bacon,  and  to-day  baeon 
sells  for  more  than  ham.  •      ,  i    u  ^ 

i        Mr.  Morris.  I  have  seen  lard  sold  for  less  than  hogs  on  the  hoof. 
^      We  are  selling  bellies  to-day  for  less  than  hogs,  and  probably  next 
fall  we  will  get  4  or  6  cents  more  for  them  than  for  hogs  on  the  hoof. 

Mr.  M088B.  Hien,  as  I  take  it,  you  think  it  is  impossible  to  build 
a  cost  system  based  entirely  upon  the  exact  cost  ? 

•  Mr.  Timmins.  I  do  not  see  how  it  can  be  done,  Mr.  Morse^ 
^         Mr.  Morse.  You  do  not  see  how  it  can  be  donef 

Mr.  Timmins.  No. 

Mr.  Morse.  And  you  at  the  present  time,  as  far  as  costs  are  con- 
cerned, you  are  doing  the  best  you  can? 
Mr.  Timmins.  I  think  we  are. 
T  Mr.  Morris.  We  feel  we  have  a  very  accurate  cost  system. 

Mr.  Timmins.  We  feel  we  are  doing  the  very  best  we  can  with  ti^ 
conditions  we  are  dealing  with. 

Mr.  Morris.  Dealins:  with  perishable  products  as  we  are. 
Mr.  Morse.  You  can  see  that  your  sys^^m  is  bound  to  erther  take 
>      a  profit  or  loss,  as  between  departments,  cant  yout 

Mr.  Timbcinii.  Yes:  that  will  be  onfy  in  the  fluctuation  of  the 

market  though.  .    ,    ^         .      -  ^,         1  x« 

Mr.  McmsB.  It  will  only  be  m  the  fluctuation  of  the  market! 
]iftr  Timmins.  Yes. 

Mr.  M0MB.  You  do  see  that  you  are  either  taking  a  profit  or  loss, 

*  as  between  departm^ts,  when  you  consider  market  values? 
Mr.  Timmins.  Absolutely,  but  at  the  same  time  you  take  these 

class  !  accounts,  for  instance,  all  the  accounts  in  No.  1,  and  you 
ate  adding  all  of  those  in  to  get  your  cost  or  profit  or  loss  on  these, 

•  so  you  are  not  in  that  sense  assuming  a  profit  or  loss. 

#  Mr.  Morris.  You  are  liable  to  have  a  loss  or  a  profit. 
Mr.  Timmins.  You  are,  outside  of  that  group  of  items,  which  is 

all  a  part  of  the  same  business.  ,     ^  u 

V  Mr.  Morse.  You  really  can  not  tell  exactly  as  to  the  real  cost  be- 
tween these  items,  even  in  the  various  departments  in  class  1,  or  in 
the  various  departments  of  class  2  or  3  or  an  int^nehange  between 

y      departments  t 


y 


168        MAXIMUM  PBOFIT  LIMITATION  ON  M£AT-PACKINQ  INDUSTBY. 

Mr.  TiMMiNS.  I  think  we  can  absolutely  determine  that  for  the 
Mdon  that  take  your  butterine  account  as  an  illustration  of  that  very 
point,  and  you  haye  a  maitet  for  oleo  all  the  time.  Yon  have 
doms  of  (Meomargarine  manuf aetureis  buying  that  oleo,  not  only 
here,  but  in  Europe,  and  you  have  eslablijsuied  prices  on  thftt  "We 
take  our  oleo  depurtineBt  here  and  we  tzeat  it  just  the  same  aa  oitt- 
side  business. 

Mr.  MoRBis.  When  thsy  em  Imy  cheaper  iratti  some  one  elaa  than 

from  us,  they  buy  it. 

Mr.  Morse.  Perhaps  in  your  butterine  department  you  may  be 
able  to  determine  the  exact  cost  more  absolutely  than  in  other  depart- 
ments. I  can  see  that  in  these  other  items  it  is  an  impossibility  to 
ascertain  the  exact  cost.  Now,  I  am  talking  pure  theory ,  Mr.  Tim- 
mins. 

Mr.  TiMMiNS.  I  think  that  is  so  on  certain  departments. 

Mr.  Morse.  Even  where  it  is  class  1  or  2  or  3? 

Mr.  TiMMiKS.  No.  For  that  reason  we  would  not  contend  that 
departments  such  as  you  mention  should  be  taken  out  of  class  1. 
They  are  strictly  packing-house  items  then.  The  only  point  we  have 
ever  contended  for  taking  certain  departments  out  of  class  1  and 
'  putting  them  into  2  or  3  are  departments  where  you  can  absolutely 
treat  them  as  sei>arate  units  of  your  business,  and  where  you  can  be 
on  the  same  basis  and  are  on  the  same  hads  with  the  man  in  the 
same  line  of  business  outside.  I  do  not  think  we  would  want  to  go 
bevond  that  I  do  not  think  we  would  ask  to  go  beycmd  that 

Mr.  Whipple.  I  think  we  have  your  theory  on  that  There  is  one 
point  here:  You  have  spoken  of  hides  and  oleo.  It  seems  that  the 
market  can  be  established  for  that.  Now,  what  about  the  other  by- 
products ;  is  there  a  free  market  for  your  other  by-products,  for  in- 
stance your  hoofs,  your  glue  stock  and  blood,  and  certain  kmds  of 
bone  and  hair? 

Mr.  TiMMiNS.  That  all  goes  into  our  fertilizer  account,  and  we 
contend  that  fertilizer  is  a  part  of  class  1.  We  would  not  ask  for 
that  to  be  taken  out  of  class  1. 

Mr.  Whippue.  Well,  in  the  case  where  you  manufacture  that  or 
prepare  that  to  stages  beyond  which  the  packers'  province  goes,  you 
are  entitled  to  a  larger  percentage  of  profit,  and  wasn't  that  taken 
into  another  class? 

Mr.  TiMMiNs.  Yes;  but  that  is  what  you  call  manufactured  fer- 
tiliser. We  do  not  do  that  here;  in  our  fertilizer,  we  manufacture 
that  raw  material,  blood,  tankage  and  the  bones,  and  there  is  an 
established  market  when  you  get  to  that  point  When  you  ship 
that  out  to  a  manufaeturing  plimt— 4hat  is,  where  they  manufactnfe 
commercial  fertilisers— then  yon  are  placing  that  d^Murtment  of 
your  business  in  the  same  group  with  the  plant— shall  we  say — what 
IS  that  big  southern  fertilizer  company — the  Virginia-Carolina  Chem<- 
ical  Co.,  for  instance  you  are  placmg  it  on  the  same  line  as  that;  you 
are  charging  your  tankage  and  ammoniates  to  your  plant  at  the  same 
price  you  are  selling  to  these  people.  We  do  not  use  all  our  prod-* 
ucts.   We  sell  some  of  them. 

Mr.  Whipple.  In  your  case  there  is  no  reason  why  the  cost  in 
these  various  departments  <q|in  i|Qt  be  aq^urftte^.  esjtablished* 


MAZXMUH  PBOTO  f  JlOTATfOy  ON  MMJO-^Ai^KIMa  IVDUSXRZ.  16B 


Mr.  TiMMiNS.  I  think  they  can  be  fairly  accurately  established. 
Mr.  Whipple.  You  do  not  think  you  can  determine  the  profit  on 
your  various  departments  accurately? 
Mr.  TiMMiNS.  I  think  we  do. 

Mr.  Whipple.  You  have  such  a  system  as  will  show  those  various 
•  things? 

Mr.  TiMMiNS.  I  think  so. 

Mr.  MoBSE.  Mr.  Timmins,  you  use  the  wordSj  "fairly  accurate." 
That  is  not  accurate;  you  say  fairly  accurately;  m  other  words,  this 
is  more  or  less  of  an  estimate.  It  may  be  an  estimate  that  is  near 
or  f auvand  I  presimie  yott  are  doing  the  best  you^ 

Mr.  TiMioNS.  I  will  withdraw  that  if  you  want  us  to,  Mr.  Morse, 
and  I  will  say  they  are  accurate.  We  ar  rather  consenrative ;  I  do 
not  like  to  use  an  absolute  statement  and  say  it  is  to  a  cent,  that  it 
is  actual,  it  won't  vary — ^that  it  won't  vary  a  cent  this  way  or  a  cent 
that  way,  but  I  am  willing  to  withdraw  that  and  say  that  it  is  actual 
because  we  are  transferring  those  products  at  the  same  price  that 
we  are  selling  the  same  things  to  other  dealers  in  the  same  line  of 
business,  and  I  think  that  is  the  only  way  yon  can  establish  the 
real  conditions  in  any  business. 

Mr.  Whipple.  Well,  you  may  have  worked  out  a  scheme  where 
you  think  they  are  accurate,  but  as  an  actual  fact  they  are  not  accu- 
rate when  you  take  the  definition  of  the  word,  "  accurate  "  from  the 
dictionary,  because  you  are  using  a  mere  estimate. 

Mr.  TiMMiNS.  No  ;  we  are  not  using  an  estimate.  I  do  not  think 
where  I  sell  the  oleo  or  fertilizer  or  bides  

Mr.  Morse.  Well,  eliminate  oleo. 

Mr.  Timmins.  Take  hides,  oleo,  fertilizer,  any  of  those  commod- 
ities, if  we  are  SBlling  more  of  thoee  o(»nmodities  to  outside  dealers 
fiian  we  are  using  oiSselves,  we  charge  our  own  people  at  Hie  same 
prices  we  are  constantly  aM  daily  sdling  to  the  other  phmts.  I 
say  it  k  aotoaL  We  are  exactly  the  same  bam^ai  thiw  oai^^ 
plants  are.  I  say  that  is  actual. 

Mr.  MoBSE.  Mind  you,  Mr.  Timmins  I  am  not  critidzing  you. 

Mr.  TiMMiKs.  I  know  you  are  not,  Mr.  Morse. 

Mr.  Morse.  I  only  wanted  to  ascertain  if  it  could  be  possible  to 
bring  those  costs  to  actual  figures.  Now,  I  am  using  actual "  as 
the  definition  in  the  dictionary  gives  it. 

Mr.  Morris.  I  believe  our  costs  will  be  actual^  if  there  is  such  a 
thing  as  actual  cost. 

Mr.  Timmins.  I  should  say,  Mr.  Morse,  our  costs  are  actual,  so 
far  as  the  division  of  these  various  accounts  in  the  various  groups 
are  concerned. 

Mr.  Chase.  Not  as  between  departments  necessarily. 

Mr.  Timmins.  Not  as  between  departments  in  the  same  group,  you 
see.  For  instance,  fertilbm,  I  am  not  going  to  say  you  can  establish 
a&  exact  prioe  on  wbkch  you  can  transfer  the  raw  stuff  from  your  ani- 
mal to  fertiliaer  to  the  Inctiliaer  aeoonnt,  and  therefOTe  fertilizer  must 
stay  itt  gfoup  1  with  whaife  wm  mH  Mr  tankage  account,  you  see.  l^t 
when  you  come  to  your  manufacturing  cfepartment  of  fertilizer, 
your  commercial  fertilizers,  then  I  say  that  is  actual.  There  is  a 
d^brenoe  there.   ¥<m  can  see  where^  tliat  would  come  in,  Mr.  Ghaseii 


170     MAXIMUM  mom^  UMiTATioKr  oar  MBisiBAOKisa  imvaaaa. 


Mr.  Morse.  As  long  as  we  are  on  this  question  of  classification,  I 
would  like  to  ask  Mr.  Morris  if  he  thinks  the  stockyards  should  stay 
in  class  3. 

Mr.  Morris.  I  should  think  so. 

Mr.  Morse.  You  think  thev  should  be  in  class  1  ? 

Mr.  Morris.  No  ;  I  think  they  should  stay  in  class  3.  I  do  not  see 
what  that  has  got  to  do  with  the  packing  business. 

Mr.  MoKSB.  The  packm  control  the  stockyards,  doilt  thfljf 

Mr.  M(»Ri8.  Some  padnra  own  some  stock  in  aaam  ftockyarcbL 

Mr.  MoMBB.  Do  you  own  some  stodct 

Mr.  Morris.  Mortis  ibCkkOilriis  a  ▼eiy  amaUamouiit  of  stock  mt^ 
stockyards. 
Mr.  TiMMiKB.  A  Tery  small  amount 
Mr.  Morse.  You  do,  however,  own  some? 

Mr.  Morris.  Morris  &  Co.,  yes ;  I  do  not  believe  Morris  &  Co.  own 
and  control  any  stockyards.   Do  they,  Mr.  Timmins? 

Mr.  Timmins.  No. 

Mr.  Whipple.  I  think  probably  it  would  be  better  to  stay  oS  the 
question  of  stockyards.  Then  you  feel,  according  to  the  rules  pro- 
vided and  laid  down  in  the  rules  and  regulations,  that  you  can  ac- 
curately determine  the  cost? 

Mr.  Timmins.  I  believe  so. 

Mr.  Whipple.  Of  course,  with  some  arbitrary  method  of  prorating 
overhead,  such  as  administration  and  general  expense. 

Mr.  MoMOS.  Let%<call  it  ''ispme  fair  method,  rather  than  some 
arbitrary  method. 

Mr.  WnavuL  Well,  it  has  ^t  to  be  somewhat  tMtnay.  Some 
fak  method^o  you  bdieTe  uiat  method  distribating  oteriited 
would  be  the  same  with  all  - ooiii{MUtte8,  or  wo^ld  it  vary  with  tha" 
particular  companies? 

Mr.  Timmins.  I  should  think  that  wonld  have  to  vary  according 
to  what  per  cent  they  did  in  each  depurUnent.  We  may  IdU  twioe. 
as  many  nogs  as  catue  and  again  we  may  kill  twice  as  i  many  cattle^ 
as  hogs. 

Mr.  Whipple.  What  is  your  basis  for  distributing  your  overhead? 
Mr.  Timmins.  Shall  I  go  into  that  in  detail,  Mr.  Whipple? 

Mr.  Whipple.  No. 

Mr.  Morse.  We  haven't  got  time. 

Mr.  Whipple.  I  just  want  to  get  a  general  idea  for  the  record. 

Mr.  Timmins.  Starting  with  our  selling;  our  salesmen,  they  are 
charged  directly  to  the  departments  interested.  Such  other  parts  of 
our  organization  here  in  this  office  which  can  not  be  so  distributed 
are  charged  to  each  department  on  a  sales  basis,  and  that  would 
take  in  our  mdit  department,  our  railroad  departments,  our  ac- 
counting departn^t,  and  the  pay  roll  outside  is  charged  actual 
figures  such  portions  as  can  not  be  detetmined — reoeiTing  derks, 
dipping  clerks,  police,  watchmen,  fire  protection,  all  of  Humm 
kinds  of  things  on  the  outside  are  charged  to  the  departmaUti  on  Uie 
bask  of  the  outside  pay  roll.  All  insiiraiioa  is  idiargcd  at  actaaL 
Does  <hat  about  give  it  to  you  ? 

Mr.  Whippub.  Yes;  in  other  words,  you  belieye  that  the  entire 
overhead  expense  which  can  not  be  directly  apportioned,  that  each 
group  or  each  expense  should  have  its  own  little  method  of  distribu- 
tion  gapending  an  the  oomditiona.  For  instance,  hogs,  the  Balarim  for 


MAXIMUM  FEOFIT  LIMITATION  ON  MEAT-PACKING  INDUSTBY.  171 


one  company  might  not  necessarily  agree  with  the  salaries  for  the 
other  companies,  and  in  the  various  departments  it  need  not  agree 
with  the  various  departments  of  the  other  companies. 

Mr.  Morris.  I  do  not  believe  that  jon  can  mix  saJiuies  a  great  deaL 

Mr.  Whiffle.  I  do  not  think  so  either. 

Mr.  Morris.  We  try  to  keep  our  salaries  in  line  with  what  we 
think  is  reasonable  for  them.  That  is  about  all  we  could  do. 

Mr.  Whipple.  Then  you  believe  the  distribution  of  overbad  in 
each  case  should  depend  on  the  merits  of  the  easel 

Mr.  TiMMONs.  I  rather  think  so. 

Mr.  Morse.  Mr.  Morris,  whenever  we  use  the  word  "  arbitrary," 
we  do  not  mean  that  in  any  offensive  sense;  we  simply  use  the 
word  according  to  the  definition  given  for  it  in  the  dictionary. 
Now,  an  arbitrary  method  may  be  very  fair  and  it  may  be  very 
unfair.  We  do  not  assume  you  have  been  unfair. 

Mr.  Morris.  What  I  am  trying  to  bring  out  is  that  our  method 
is  fair. 

Mr.  TiMMOHS.  Just  so  we  understand  it  the  same  way. 

Mr.  Whiffle.  I  think  Mr.  Tinimons,  as  an  accountant,  will  un- 
derstand that  term.  All  overhead  is  more  or  less*  overhead ;  you 
can  not  say  that  any  man's  salary  not  working  in  the  pig  pen,  should 
be  charged  to  the  pig  pen;  you  only  assume  it  stould,  and  have 
worked  it  up  that  W9j  foUawing  some  line  of  reasoning  of  your  own. 

Mr.  Morse.  It  may  be  very  correct,  for  all  wa  know. 

Mr.  Whiffub.  Now,  about  your  subsidiary  companies,  do  you 
think  the  same  methods  can  be  followed  with  the  sub^iary  com- 
panies as  is  followed  with  the  parent,  and  that  the  accounts  of  the 
subsidiary  companies  can  be  so  combmed  with  those  of  the  parent 
companies  that  it  wUl  show  the  whole  fMMM>untfi  of  these  three  cc»n- 
panies  ? 

Mr.  TiMMONs.  I  do  not  know  that  I  have  studied  that. 
Mr.  Morris.  We  are  not  affected  very  much  with  that,  are  we, 
Mr.  Timmons? 

Mr.  Timmons.  Well,  of  course,  what  he  means  by  subsidiarv  com- 
panies would  be,  say,  Joseph  Stern,  or  the  Morris  Fertilizer  Co., 
or  William  F.  Mosser  Co.,  whether  w^e  could  consolidate  and  make 
up  6ne  consolidated  statement  for  them  all.  I  do  not  know  but 
that  that  could  be  worked  up  into  a  consolidated  statement  on  a 
pretty  fair  basis. 

Mr.  Whiffle.  Don't  you  believe  now  that  this  question  is  up, 
you  people  like  this  regulation,  that  if  that  point  were  established, 
and  those  accounts  so  consolidated  with  the  parait  company~-not 
necessarily  consolidated  on  Ihe  books,  but  the  books  gott^  in  si^h 
shape  at  any  time  that  you  can  make  up  a  consolidated  statement, 
and  that  would  b&ve  to  be  so  if  this  regulation  were  going  to  con- 
tinue—that those  various  books  should  be  brought  in  line  with  the 
books  of  the  parent  company,  so  that  the  whole  company  could  be 
consolidated  at  any  time,  from  the  viewpoint  of  these  regulations  If 

Mr.  Timmons.  1  can  see  no  objection  to  that. 

Mr.  Whipplc^  Can  you  see  any  advantage  to  it,  or  see  the  neces- 
sity of  it? 

Mr.  Timmins.  I  don't  know  that  I  can  say  I  can  see  the  necessity 
of  it,  yet  I  woi44^^  t^^  X  wQuld  agree  that  it  might  be  the  proper 
thing  to  do. 


i 


172     MAXIMUM  vBomijaammom  MUM^ttiw^dmiM 

Mr  Whipple.  In  other  words,  these  subsidiarjr  companies,  you 
should  be  able  to  take  their  balance  sheets  and  dUivide  Uieirlmts 
"P^i^^^J^"^*^^  classes,  if  there  are  three  classes. 

Mr.  TiMMiNs.  Yes. 

^^V^^^^^'f-  It       <^^eir  assets  are  in  one  class,  they  should  be 
Sc^  Ju'b^dbry  "^^^ 
ad^?ntSlTft^  accomplish  that  and  I  can  see  some 

«linM  S™Tf**  *H  ^^H^       the  subsidiary  companies 

s^uld  be  gotten  into  such  shape  Hiat  you  can  show  a  profit  and 
k)^  statement  for  the  consolidated  oompiinyf  f  "  «' 

Mr.  TiMMiNS.  Quite  so.  ; 

Mr.  MoRBis  I  do  not  believe  on  all  the  mMdiary  companies- 
is  It  possible  to  show  your  profit  and  loss  <m  two  montiilies-senii- 

niontlilv?  «i  souu 

Mr.  tiMMiNs  Well,  it  is  a  little  hard  sometimes  to  do  that,  and 
still  in  tlie  gradual  working  out  from  month  to  month  or  to 
year,  you  get  that.    Of  course,  the  point  Mr.  Morris  briLs  up 

there  is  the  fertilizer. 

Mr.  MoRius  Fertilizer,  especially.  The  fertilizer  business  is  a 
land  of  annual  or  semiannual  matter;  it  is  seasonable  commodity, 

H^hr^fifS"  J^^^^^  -.^'''^r         y^^l^}^  "^^S^^  «ot  be  just  exactly 
Mht  this  period,  It  will  adjust  itself  in  with  another  period.  I 
do  not  think  It  would  be  very  far  off.  f^*"**. 
Mx.  Wdl,  Oiat,  Mr.  Timmins,  would  mean  the  profits  of 

Mr.  Timmins.  That  k  quite  S(»»  ' 

Mr.  Timmins.  What  we  meant  was  that  it  i»  a  seaeoiieble  buai- 

ness,  and  m  carrying  your  product  along  it  is  pretty  hard  to  de- 
termine when  you  are  manuJacturinff  and  not  selling,  to  determine 
what  your  profits  are  going  to  be  when  vou  come  to  sell  out  You 
can  not  make  a  profit  on  that  stuff  untU  you  do  leally  seU  it  and 
know  what  you  are  going  to  sell  it  for.  ^  f 

Mr.  Whipple.  In  other  words,  in  some  departments  it  would  be 
fairer,  and  the  profits  must  be  determined  on  an  annual  basis. 

1^'  w^^ff •  Absolutely.    This  is  a  seasonable  business. 

Mr.  Whipfle.  Rather  than  on  any  shorter  Deriod. 

Mr.  TiMMiMS.  That  is  right. 

Mr.  WmFKA  You  must  have  a  complete  cycle. 
^Mr.  Montis.  And,  of  course,  profits  on  a  monthly  or  on  a  two 
^ths  basis  does  n<^  mean  very  much.  Ours  has  always  been  an 
up  ana  down  propositioii. 

Mr.  WHffPM.  ^  onlv  fair  way  to  look  at  a  busmess  would 
be  from  a  year  or  a  complete  q^de.  . 

Mr.  Timmins.  I  rather  think  so. 

Mr.  Whippi^  But  there  is  another  method,  and  this  method  of 
closing  your  books  up  on  a  two  months'  basis  for  some  departments 
fumisli  very  good  statistical  information.   For  instance,  the 
department,  I  take  Jt  that  hokie  true.  Your  emaai^Uer^^^ 


MAXIMUM  FBOFIT  UMITATIOH  ON  MEAT-PAGKINQ  INDUSTRY.  173 


you.  sell  it  almost  immediately,  your  profits  are  fairly  well  deter- 
mined at  the  end  of  a  shorter  pmod  thim  me  year. 
Mr.  Timmins.  That  is  quite  txm. 

Mr.  Whipfus.  In  scmie  other  department  where  you  sell  meeti 
that  would  be  more  of  a  seasonable  piopoekion. 

Mr.  Timmins.  Yes. 

Mr.  Morse.  Mr.  Morris,  how  would  you  view  the  proposition  as 
near  as  it  could  be  made  uniform,  of  a  cost  system  for  all  the  packers  ? 

Mr.  Morris.  If  you  try  to  give  us  an  economical  system,  and  pick 
out  the  best  points  from  all  the  packers,  so  as  to  get  up  the  best 
system,  and  don't  make  it  too  complicated,  I  am  heartily  in  favor  of 
it.  I  think  an  awful  lot  of  good  can  be  done  on  it,  if  properly 
handled. 

Mr.  Morse.  That  is  what  I  mean,  something  not  too  complicated. 

Mr.  Morris.  The  help  situation  is  pretty  serious.  What  we  want 
and  what  you  want  to  give  us  is  something  that  will  cut  down  our 
clerical  work  as  much  as  possible,  rather  than  increasing  it.  I  sup- 
pose we  have  got  some  goodpoints  in  our  system  of  accounting, 
umI  we  have  some  l»d  Jones.  We  une  bound  to  have.  Every  one  else 
is  ^ps6bMj  in  the  same  shape.  Ail  have  tlieir  weaknesses  and  strong 
pomtEk  I  tlittfe  lliat  is  flomstlui^  they  xedlfy  tsaii  do  our  indusi^ 
some  good  ul 

Mr.  MoBBB.  You  would  weloome  sugi^Bsticms  of  that  kund  from  the 
Government! 
Mr.  MoRMS.  Yes ;  I  would  very  stroi^y. 

Mr.  Whipple.  In  other  words,  it  simmers  right  down  to  the 
proposition,  if  you  are  going  to  regulate  the  packers,  you  must  have 
uniformity  all  the  way  through  in  order  to  regulate  them,  to  bring 
each  one  on  the  same  basis  with  all  the  others. 

Mr.  Morris.  I  am  not  looking  at  it  from  that  standpoint.  I 
don't  know  whether  that  is  necesary  or  not. 

Mr.  Morse.  As  far  as  costs  are  concerned,  Mr.  Morris? 

Mr.  Morris.  I  suppose  that  the  same  costs  can  be  derived  in  two 
different  ways  very  often,  and  one  can  be  as  accurate  as  the  other. 
The  thing  I  am  looking  at  is,  if  you  give  us  better  accounting,  we 
can  get  the  information  that  you  want  with  less  help,  and  whatever 
is  best,  we  are  heartily  in  favor  of  it. 

Mr.  Whutub.  What  I  meant  to  say  was  that  I  brought  up  the 
unif <Mrtmty  of  the  subsidiary  oomfMiny  accounts  wi^  Uie  parent  com- 
pany's account — aad  I  tiiink  that  is  necessary  to  make  Uie  regulation 
effective  all  the  way  through,  and  I  think  l^uat  the  tiy^kem  between 
the  padcers  should  be  i^nilar  so  yon  out  make  a  oompwismt  between 
the  packers. 

Mjt.  Mobris.  I  think  if  your  accountants  can  detenuine  that  that 

is  feasible,  that  we  would  be  in  favor  of  it. 
Mr.  Morse.  Don't  smile  when  you  .say,  "if  we  can  determine  it 

is  feasible  ";  don't  smile  at  that. 

Mr.  Whipple.  Have  you  any  opinion  that  it  is  not  feasible? 

Mr.  Timmins.  I  do  not  know  just  how  you  might  have  to  change 
the  systems  of  the  various  companies.  Probably  you  would  not 
want  to  do  anything  that  would  disrupt  an  established  system,  and  I 
do  not  know  how  much  you  might  have  to  do. 

Mr.  Whipple,  Oh,  you  can  not  disrupt  anything. 


174     MAXIMUM  PROFIT  uMixAnou  oM  MKAT-*AOHiiro  iimontT. 


Ifr.  TiMMiNs.  If  yon  can  do  it  without  disrupting  them  and  still 

HXof  ""^/i.^  -  •1''    ""l*^  best;  and  tefce 

ib2SL  «Jilw»  ^""^  "'th  all  of  us,  and  brinR 

•Wmt  m  that  way  a  uniform  system  of  establishin.r  the  cost.  I  «sW 

mT  ^ir/^K-'t ''^  '"'"^  advantage  to  us  probably  ^ 
thi^  wfT^  •'^u"  Y*^"'     '^''^  at  tlie  fact  pretty  thorouehlv 

that  we  are  decreasing  the  help  instead  of  increasing  it  bee  nsn  h!I 
l^lp  is.decreasing.  W«  an  su&tituting  girls  foi  in^  aVd  oXhV^ 
*l»e  maionty  of  £em  are  not  m  efficient  '  P^^ably 

M.^'  w?T"  '       ^^^f^  *®.**  y«»  <^  question, 
svsf.n,        r""-  »*  »       n««sary  before  a  uniform 

cC  hoi',"  booir^t'^rr.-  T  •»Wdi«y^companies  "a 

panv    n    tW  fhf  "l?^^^         «       Pa^ent  com- 

llfl";  .'.  1  the  prohts  of  the  sidMidiarr  oompsnieB  should  he 

lefleciod  on  a  consolulated  statement  M  the  iid  Sn^lewl 

nf'^I^fiY'i!"'":''-  ^"  "^''f-  J"'"  not  irant  a  little  Ml 

of  profit  hanging  over  this  fellow  that  was  not  shown  on  S«  ««r 
«>M«««d  statement  at  the  end  of  the  year.  ^ 
Mr.  TiMMiNS.  No;  we  show  the  same  figures  for  all  thosA 

^M^'  S^"^*^  "'i     ''^'"'^^        colisolidat^d  tatSmlnf"' 

P^.^^tSre^e^^lir«rara"te^^^^^^^^^^ 

Mr  t£;^2^ Wo^T"^*  •"L^'nE?nie«  you  do  that  with? 

and  111  the  companies  n  which  wii  hnvp  «  i 

take  their  profit  as  they  deZe'l  "^^nT'^^Z^ZSl 

Mr.  Morse.  You  t.ikc  that  up  as  other  income?  '    "  ■ 

aint'ntI-;.Z%i  Tr^LZ^^:^,^:  J^IJ- 
are verysmall  items.  ^  they 

iJ^fS^^"  consolidation  you  also  Be- 

lieve tl»t  TOO  can,  m  your  company,  get  the  same  details^ 
your  subndiary  companies  and  on  all  ymir  branch  Luspt  tLf  ,,*" 
c«  on  flie  pM«nt  company;  for  instance,  you  caS  Zw  the  actual 

Mr.  Chase.  Yes. 
branch  houses  the  same  as  you  do  from  ^Zm^JSS^"^ 


MAZnCUM  fBOFIT  UMUAaXOlfr  OK  MEAT-PACKING  INDUSTBY.  175 


Mk'.  TiMiciNS.  It  would  be  almost  impossible  for  the  simple  rea- 
son that  thev  are  just  little  selling  branches  and  the  man  is  an 
cxjcuti^and  salesman  and  bookkeeper  and  the  whole  thing. 

Mr.  Whipple.  Well,  is  il  necessary  for  your  branch  houses  in 
keeping  tlieir  books  or  m  reporting  to  you  to  net  any  figure  rather 
than  show  your  gross  figures  all  the  way  through? 

Mr.  TiMioKSj  He  don't.  ^ 

Mr.  Whipple.  For  instance,  sales ;  why  deduct  anything  for  it! 
Why  shouldn't  he  show  you  the  ^ross  figures! 

Mr.  TiMMiNs.  He  does.  He  gives  us  the  gross  sales  and  the  gross 
prohts  and  the  total  expenses,  and  the  difference  between  the  gross 
prohts  and  the  total  expense  is  the  profit  or  loss  at  that  braach 
house  for  the  period. 

Mr.  Whipple.  And  if  that  is  determined,  you  have  no  trouble  get- 
ting the  same  information  for  your  branch  houses  that  vou  have  for 
your  parent  houses.  Now,  as  a  matter  of  fact,  the  matter  of  sales,  is 
not  that  rather  an  accounting  proposition  of  how  you  want  to  ti-eat 
It!  lhat  is,  I  mean  providing  you  can  at  the  end  of  the  period  get 
the  same  mfonnate)n  all  the  way  thf^ugh ;  that  is,  1  mean  if  you 
WMIt  to  compare  the  selling  price  of  your  branch  houses,  that  would 
not  ftave  anything  to  do  with  your  accounting  features,  which  vou 
c^^d  detenmne  at  the  endi>f  the  year  if  all  the  information  was 

Mr.  TiMMiNS.  Not  at  aH- 
^  Mr.  Whipple.  I  do  not  see  that  that  would  affect  the  statistical 
other'^etho/^"  <^  get  from  the  branch  houses,  krespective  of  any 

Mr.  TiMMiNs.  Not  at  all. 

Mr.  Morse.  Do  you  carry  control  accounts  cm  your  ledsers  witii 

your  branches  as  to  sales?  ^ 
Mr.  TiMMiNS.  No;  not  as  to  sales. 

Mr  Morse  In  order  to  find  out  the  total  sales  of  any  branch,  vou 
wx)uld  have  to  go  to  the  branch  books?  They  are  not  on  the  books 
of  tJie  home  company? 

Mr.  TiMMiNs.  No ;  thev  are  not. 
po^?  ^"^^  <^hat  from  your  branch-house  re- 

Mr.  TiMMiNs.  Yes. 
hoJS'r^^  ^  f'^"'"  your  branch- 

wo^d  2veTu  thS'  yoa  ^  boiW  up  statistical  information  that 

Mr.  &0R8B.  There  are  no  control  accounts,  what  we  know  as  con- 
trol accounts,  with  vour  branch  hoiBesef  sales  I  1^ 

Mr.  TiMMiNs.  Not  at  all. 

Mr.  Morse.  Would  it  cause  you  any  more  labor  or  inconvenience 

to^rlte!*""^'  ^^'""^  cost  us  a  good  deal  more  money 

h^„^^^  ^""^^^^  '"Stance,  your  control  accounting  was 
built  U5  once  a  week  or  once  a  month  so  as  to  show  the  totals  •  of 

^'^Jnd':^l^*^lr°\^rr'^  ^^^^  particular  man  X 
you,  you  oon(4  go  to  the  bnmch  books,  you  would  not  need  to  cany 


X76       ICAXIMUM  nOFIT  lAUmmOV  on  lCli!»AOKI3irO  IVDUSTBT. 

tliAt  at  the  main  office  unless  yoa  wanted  to.  Do  yoo  iliiidL  A  sobtae 
of  that  sort  would  be  feasible? 

Mr.  TiMMiNs.  I  think  it  is  far  better,  Mr.  Morse,  to  keep  it  off  of 
these  books,  and  whenever  you  want  any  informalaon  get  it  froBt/ldbo 
rapc»ts  that  would  be  furnished. 

Mf .  Morse.  Why  ? 

Mr.  TiMMiNs.  I  think  it  would  be  very  muoh  mofo  simple  and 

easier  to  handle. 

Mr.  Morris.  And  take  less  help? 

Mr.  TiMMiNS.  And  take  less  help  and  give  you  the  same  infor- 
mation. 

Mr.  Morse.  Don't  you  think  that  information  anyhow — I  am 
more  or  less  familiar  with  your  system — I  do  not  know  as  I  should 
say  your  system,  but  the  system  of  the  packers  having  traveling 
auditors  going  around  to  the  different  branches  and  drawing  off 
the  bills  and  reporting  to  the  home  office;  at  least  you  could  obtain 
the  information  from  their  reports  necessary  to  build  up  the  con- 
trol.  I  should  think  that  that  might  be  very  useful  to  you. 

Mr.  TiMMiNS.  I  can  not  see  just  where  it  would  help  us,  and  it 
does  seem  to  me  it  would  take  considerable  more  help  to  build  up 
tiiat  control:  and,  as  I  say,  from  tl^  reports  which  we  do  get  from 
them  we  ooold  compile  any  necessary  figures  that  you  might  want  or 
that  we  might  want. 

Mr.  MoBSE.  Well,  that  is  a  proix)sition  I  iam  not  so  mucb  .iiler- 

ested  in.  .  ♦  . 

Mr.  Whipple.  So,  by  your  report  s^fvtem,  at  tfao  end  of  a  given 
period  you  could  consolidate  your  businesses  as  a  whi^  and  draw 
off  what  you  might  call  a  complete  piofit*and-los8  statement  for 
your  entire  organization. 

Mr.  TiMMiKS.  We  do  do  that. 

Mr.  Whipple.  Have  you  such  a  profit-and-loBS  statanent;  that  is, 

detailed  profit-and-loss  statement? 

Mr.  TiMMiNs.  Yes;  we  make  up  those  profit-and-loss  statements. 

Mr.  Whipple.  Showing  gross  sales  or  net  sales? 

Mr.  TiMMiNs.  We  do  not  show  the  sales,  but  we  do  show  the  profit 
and  loss;  we  don't  bring  the  sales  into  it. 

Mr.  Whipple.  And  showing  your  expenses? 

Mr.  TiMMiNs.  No;  it  shows  the  net. 

Mr.  Whipple.  Have  you  any  information  you  could  get  up  to 

show  those? 

Mr.  TiMMiNs.  Probably  not  with  our  present  system  of  account- 
ing. That  was  brought  out  yesterday — without  doing  quite  a  little 
more  statistical  work. 

Mr.  Whipple.  Well,  that  is  what  I  mean.  From  these  reports  you 
dK>u]d  he  able  to  agther  all  that  informataon^ 

Mr.  l^MiNs.  Well,  our  reports  are  hot  made  np  at  die  present 
time  so  vou  could  show  the  sales — gross,  expense,  and 

Mr«  MoBSB.  In  other  words,  that  informatikm  is  in  the  main  office, 
but  you  corid  get  it  if  you  had  to! 

Mr.  TiMMiNS.  Well;  bringing  it  to  our  main  office  report,  is  what 
you  are  speaking  of  ? 

Mr.  Whipple.  Yes. 

Mr.  TiMMiNs.  We  haven't  that  in  oup  main  office;  it  does  not 
giva  us  that  at  the  praMit  time. 


MAXIMUM  PROFIT  LIMITATION  ON  MEAT-PACKING  INDUSTRY.  177 

Mr.  Whipple.  Don't  you  think  in  order  to  make  this  regulation 
effective,  and  make  your  business  uniform  all  the  way  through,  you 
have  eventually  got  to  have  that  information  here  or  make  arrange- 
ments to  have  it  here,  either  in  the  form  of  keeping  books  by  con- 
trol accounts  or  by  complete  system  of  auditor's  reports,  at  the  end 
of  a  given  period? 

Mr.  TlMMDra.  Well,  I  think  that  probably  will  be  worked  out 
by  the  accountants,  in  determining  what  is  tne  simplest  metliod  to 
produce  the  results  whidi  you  really  feel  are  necessary. 

Mr.  MoBSB.  By  accountuits  you  mean^  Mr.  Timmins,  the  uniform 
accounting  system  that  is  now  being  agitated! 

Mr.  TiMBnNs.  Yes. 

Mr.  Morse.  And  talked  over  between  the  Federal  Trade  account- 
ants and  the  packers? 
Mr.  Timmins.  Yes;  I  think  they  will  get  together  on  some  scheme 

that  will  be  satisfactory  to  everybody. 

Mr.  Whipple.  I  do  not  know— but  I  can  not  find  it  in  the  Cana- 
dian regulations,  but  the  Canadian  regulations  make  provision 
M  hereby  the  parent  company,  or  a  company  holding  50  per  cent  or 
more  of  the  capital  stock  of  any  company,  can  be  ordered  by  the 
mmister  or  whatever  they  call  him — ^what  is  that,  the  minister  of 
finance? 

Mr.  Chase.  The  receiver  general,  I  think  it  is. 

Mt.  Whipple.  The  receiver  general  in  Canada  can  compel  the  cor- 
poratum  holdiaf  go  per  cent  to  include  the  profits  of  that  partly 
owned  or  controlled  companv  in  with  the  profits  of  the  parent  com- 
pany. Now,  have  yo  any  sudi  conditions  at  the  present  time,  wherein 
you  hold  may  a  percentage  of  the  stock! 

Mr.  TnociNs..  Yes.  we  have. 

Mr.  Wmma.  And  do  you  understand  these  regulations  to  mean, 
these  present  regulations,  that  the  Food  Administration  can  com- 
pel you  to  bring  the  profits  of  that  c^rpoMaon  into  your  own  profits 
and  deduct  them  from  the  profits? 

Mr.  TncMXMa.  I  do  not  know  thi^  the  few  we  have  would  be  ma- 
terial. 

Mr.  Whipple.  You  do  notf 
Mr.  Timmins.  No. 

^r^'^J??  provision  of  the  Canadian  rules  and  regulati<ms  read  to 

Mr.  Timmins  by  Mr.  Chase.) 

Mr.  Whipple.  Now,  that  would  apply  to  any  company,  no  matter 
how  small  the  holding  was  in  it,  wouldn't  it,  Mr.  Chase? 

Mi.  Chase.  Yes,  if  he  wanted  to  bring  it  in. 

Mr.  Whipple.  Now,  is  there  any  such  provision  in  our  regulation? 
Mr.  Chase.  No. 

Mr.  TnooNS.  No,  there  is  not. 

an  advantage  to  our  regulations  if 

that  were  mserted? 

Mr.  TnaoHa.  I  can  not  see  where  it  would  be  any  advantage  to 
us,  b^ause  you  get  that  same  regulation  on  the  individual  companies. 
1  ou  have  the  same  control  of  it 

Mr.  Whipple.  You  see  in  this  case  we  went  into  the  question  of  the 
stockyards  before;  in  the  case  of  the  stockyards,  where  you  hold  a 
small  percentage  of  stock,  under  the  Canadian  regolation,  you  could 
ha  ompeUed  to  consohdate  that  pfofit  iraai  your  stoc^ai^  with 

iaM88-&  Doe.  110. 66-1  12 


178       MAXIMUM  FEOFIT  UMmiTHWr  OK  MMMMMmm  ITOTOXRX, 


the  profits  of  your  ordinary  busiiiess,  and  they  would  be  ewisidered 
under  the  15  per  cent  or  9  per  cent  regulation. 
Mr.  Chabb.^ou  could      do  that  because  the  rule  announced  now 

excludes  stock. 

Mr!  C^S^.^here  might  be  a  business,  for  instance,  the  butterine 
business,  in  which  Ihey  owned  70  or  80  per  cent  of  the  stock. 

Mr  f  IMMIN8.  We  have  got  a  butterine  business,  for  instance, 
that  we  bring  right  in  with  our  general  business,  anyhow. 

Mr.  Chase.  Your  100  per  cent  business! 

Mr.  TiMMiNS.  Yes.  v     ka  * 

Mr.  Whipple.  These  are  businesses  of  less  th^  50  por  _ 
Mr.TiMMiNS.  Yes,  I  can  not  see  very  much.  Fot  instMcMw* 
outside  butterine  company.    If  we  held  any  fltodc  in  "^^^^ 
held  less  than  100  per  cent,  I  do  not  see  roiUy  ve^much  advan- 
tage  of  bringing  it  in.   You  will  have  the  same  ,  . 

Mr.  Whipple  It  might  not  affect  your  businees  particularly,  but 

it  may  affect  others.  ,      ,         ^^^  ^  ^ 

Mr:  TiMMiNa.  I  dont  know  what  the  others  will  be;  I  can  not 
see  wl^re  it  will  affect  us,  or  what  advantage  it  will  be  to  us,  be- 
^!u8e  as  I  say,  if  you  have  the  same  control  over  the  one  company 
or  the  combmed  companies,,  you  have  all  you  can  have  there 

Mr  Whipple.  You  see  in  the  Canadian  regulation  that  rests 
with 'the  deciaon  of  the  Receiver  General  of  Canada,  and  that 
TOOvision  would  only  be  used  at  times  when  the  receiver  general 
thought  it  would  be  of  advantage. 

Mr  TiMMiNS.  You  could,  I  suppose,  give  the  same  power  to  the 
Federal  Trade  Commission  here,  but  as  I  say,  I  do  not  .s^ J^e^ 
it  would  do  us  any  good,  either  the  Government  or  the  mdivKlual 
or  the  corporation.   I  do  not  just  see  the  advantage  of  it. 

Mr  Whipple.  I  think  the  provision  would  be  a  W  good  one, 
and  could  be  exercised  in  the  discretion  of  the  people  mtererted. 

Mr.  TiMMiNs.  Well,  I  can  never  see  any  dwadvant^  m  giving 
to  the  proper  arm  of  the  .Government  the  power  to  act  m  an 

^^Mtf SiLe.  Now,  Mr.  Morris,  I  am  handmg  to  you  sonie  figures 
compiled  by  Mr.  ckase,  as  to  the  net  worth  of  the  five  big  packers 
and  as  to  the  class  of  profit*-as  to  the  amount  of  profits  m  classes 
1  2,  and  3,  together  with  the  total  profits.  I  understand  that  these 
fiWres  are  biwed  upon  the  past  four  months,  averaged  over  the 
^9^^^.    If  you  wSl  look  over  these  carefully,  you  will 
that  there  is  a  great  variation  in  the  percentages  of  the  different 
^sses,  as  between  Armour,  Swift,  yourself,  Wilson  and  Cudahy. 
^Hs^e  you  any  explanation  why  there  should  be  such  a  big  varia- 
tion in  these  percentages,  while  the  total  of  these  percentages  work 
down  pretty  near  even—I  should  not  say  even— they  work  down 
pretty  well,  so  the  variation  is  not  so  great.  • 
Mr.  Morris.  Didn't  we  just  go  over  that  question?    You  refer 

to  which  in  here  [indicating]  ?  wii  ^^a^ 

Mr.  MoRSE.  This  one  down  here  [indicating].  WiU  ytttt  please 

read  the  question. 

(Question  read.)  .  .  i       a  u  *  ^« 

Mr.  Morris.  I  think  the  variation  would  dwjend  somewhat  on 

how  assets  are  carried  on  the  books,  and  also  the  type- ot  buMm 

the  different  concerns  do. 


MAXIMUM  PROFIT  LIMITATION  ON  MBAT-PAOKING  IHDUSTBY.  179 


Mr.  Morse.  Mr.  Morris,  I  do  not  think  of  anything  else  I  want  to 
ask  vou  at  the  present  time.  Is  thwe  anything  you  would  lite  to 
say  regarding  the  entire  proposition!  ^  .  i.^  j 

Mr.  Morris.  No.  I  widi  you  would  vour  opinion  strai^tened 
out  on  the  hazard  part  of  it.  I  beUeve  if  you  had  an  opportunity 
to  work  in  a  packing  house  even  for  a  shwt  time,  in  an  executive 
position,  you  would  realize  that  it  is  the  most  hazardous  busmesa 
there  is. 

Mr  Whippia  That  is  the  reason  it  is  very  fine  to  bring  out  these 
things,  so  we  can  gather  the  idea,  and  we  will  undoubtedly,  before 
we  ^t  through,  form  an  opinion  on  it.  As  far  as  I  am  concerned, 
my  mind  is  perfectly  clear  and  I  am  willing  to  hear  all  sides  of  the 
question.  I  am  perfectly  willing  to  be  enlightened  on  it. 

Mr.  Chase.  I  notice  in  these  figures,  Mr.  Morris,  that  you  are  to 
be  allowed  in  your  total  business  22  per  cent  on  your  net  worth;  that 
is  capital  and  surplus,  for  the  coming  year.  That  is  an  estimate,  of 
course— the  best  estimate  that  can  be  made  on  the  records  tJMt  have 
come  in.  Have  you  any  idea  of  whether  that  is  more  or  less  than  you 
have  made  in  the  past  on  the  total  business! 

Mr.  Morris.  I  should  think  it  would  be  uKwe  than  we  have  earned 

on  our  total  business.  ...  • ,     n  ^ 

Mr.  Chase.  Do  you  think  that  that  is  a  reascmable  allowance  for 
you  under  all  the  circumstances) 

Mr.  Memos.  I  do  for  this  reason:  You  fellows  do  not  realize  that 
our  profits  that  have  been  made,  have  been  on  an  advancing  market. 
The  probabilities  are  that  the  markets  will  go  up  rather  than  down 
while  the  war  lasts.  >  When  this  market  goes  down,  we  are  not  going 
to  show  so  good.  We  are  going  to  have  mighty  hard  work  to  split 
even.  You  take  on  last  year's  business,  the  big  part  of  the  profit  was 
made  on  the  advancing  market.  Do  you  see  what  I  mean? 

Mr.  Chase.  Yes ;  I  see  what  you  mean. 

Mr.  Morris.  You  get  us  up  there  and  then  you  dump  us. 

Mr.  Chase.  So  you  feel  you  ought  to  be  assured  against  that  period  ? 

Mr.  Whipple.  You  feel  you  ought  to  be  protected  both  ways? 

Mr.  Morris.  If  you  are  going  to  limit  our  profits  going  up,  and 
not  going  down,  we  feel  that  our  profit  going  up  should  be  enough  to 
protect  us  going  down.  After  this  war  is  over,  meats  won't  stay  up 
to  these  prices,  1  do  not  think. 

Mr.  Chase.  Is  it  your  opinion,  Mr.  Morris,  that  you  can  earn  the 
coining  year  your  whole  profit  according  to  the  regulations  of  the 
Government  9 

Mr.  MosBis.  I  think  so. 

Mr.  MoBSE.  You  think  the  probabilities  are  you  will? 
Mr.  Chase.  You  have  tried  to. 

Mr.  Morris.  With  any  regulation,  I  see  very  few  people  that  bump 
their  heads  on  the  top.  There  is  usually  a  top  there,  and  people  don't 
hit  the  top.  What  it  will  be  next  year,  I  do  not  know.  If  the  top  is 
lower,  what  you  make  would  be  lower  and  you  still  would  not  hit  the 

*^&r.  Morse.  I  think  that  is  all.  We  appreciate  your  courtesy  very 
much,  Mr.  Morris. 

(Whereupon,  at  1  o'clock  p.  m.,  on  the  11th  day  of  June,  1918,  the 
hearing  of  the  above-entitled  tnatter  w;as  concluded.) 

•     •  •         ••••».»  ,  ,  , 


COLUMBIA  UNIVERSITY  LIBRARY 

This  book  is  due  on  the  date  indicated  below,  «r  at  the  1 
expiration  of  a  definite  period  after  the  date  of  borzowinct 
as  provided  by  the  rules  of  the  Library  or  hgr  ^^fftal  ar- 
rangement with  the  librariaii  in  charge. 


1       mmWm  Vlls 

1  DAn  ■vKBOWID 

1      MTI  MM 

¥o — //JJL 

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48fe5  

3  1969 

i 

1 

A15//  OVJS-g 


NEH 


D502.12  Un35  | 

^^•5f  Coz3g«  Sen.  Com.  Agri.  &  For*  j 

Maximum  profit  linitftUon  onjwit- 
pckiog  industry 


i 


SEP  16  1940 


